G.R. No.

193108 December 10, 2014

(1) MARILYN VICTORIO-AQUINO, Petitioner,

vs.
PACIFIC PLANS, INC. and MAMERTO A. MARCELO, JR. (Court-Appointed Rehabilitation Receiver of Pacific Plans,
Inc.), Respondents.

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court which seeks to annul and set aside the
Decision1 of the Special First Division of the Court of Appeals (CA), dated February 26, 2010, and its Resolution 2 dated July 21, 2010
denying petitioner's Motion for Reconsideration in the case entitled Marilyn Victoria-Aquino v. Pacific Plans, Inc. and Mamerto A. Marcelo,
Jr., docketed as CA-G.R. SP No. 105237.

Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs Corporation or "APEC") 3 is engaged in the business of
selling pre-need plans and educational plans, including traditional open-ended educational plans (PEPTrads). PEPTrads are educational
plans where respondent guarantees to pay the planholder, without regard to the actual cost at the time of enrolment, the full amount of
tuition and other school fees of a designated beneficiary. 4Petitioner is a holder of two (2) units of respondent’s PEPTrads.5

On April 7, 2005, foreseeing the impossibility of meeting its obligations to the availing planholders as they fall due, respondent filed a
Petition for Corporate Rehabilitation with the Regional Trial Court (Rehabilitation Court), praying that it be placed under rehabilitation and
suspension of payments pursuant to Presidential Decree (P.D.) No. 902-A, as amended, in relation to the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules).6 At the time of filing of the Petition for Corporate Rehabilitation, respondent had more or less
thirty four thousand (34,000) outstanding PEPTrads.7

On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing the suspension of payments of the obligations of respondent
and ordering all creditors and interested parties to file their comments/oppositions, respectively, to the Petition for Corporate
Rehabilitation.8 The same Order also appointed respondent Mamerto A. Marcelo (Rehabilitation Receiver) as the rehabilitation receiver
and set the initial hearing of the case on May 25, 2005. 9

Pursuant to the prevailing rules on corporate rehabilitation, respondent submitted to the Rehabilitation Court its proposed rehabilitation
plan. Under the terms thereof, respondent proposed the implementation of a "Swap,"10 which will essentially give the planholder a means
to exit from the PEPTrads at terms and conditions relative to a termination value that is more advantageous than those provided under
the educational plan in case of voluntary termination. 11

On February 16, 2006, the Rehabilitation Receiver submitted an Alternative Rehabilitation Plan (ARP) for the approval of the
Rehabilitation Court. Under the ARP, the benefits under the PEP Trads shall be translated into fixed-value benefits as of December 31,
2004, which will be termed as Base Year-end 2004 Entitlement, and shall be computed as follows: (i) for availing plan holders, based on
fifty-percent (50%) of Average School Fee of SY 2005-2006 for every remaining year of availment; (ii) for nonavailing (Group 1) plan
holders,12 based on the higher of Base Year-end 2004 Entitlement under the Rehabilitation Proposal or fifty-percent (50%) of Average
School Fee of SY 2005-2006 for every year of availment; and (iii) for non-availing (Group 2) plan holders,13 based on the planholders’
contributions with seven percent (7%) net interest per annum from date of full payment on record to December 31, 2004.14 The Base
Year-end Entitlement will be covered by a Rehabilitation Plan Agreement in lieu of a fixed-value plan.15

For petitioner, she is entitled toreceive an aggregate amount consisting of: (a) the value of her total contributions plus interest at the rate
of seven percent (7%) from the date of full payment until December 31, 2005 (Net Translated Value); and (b) interest on the Net Translated
Value at the annual rate of seven percent (7%) from January 1, 2006 until 2010. 16

The ARP also provided for tuition support for each enrolment period until SY 2009-2010 depending on the prevailing market rate of the
NAPOCOR Bonds and Peso-Dollar exchange rate.17 The tuition support is computed as the lesser of the remaining balance of Base
Year-end 2004 Entitlement, the last-term tuition or reimbursement on record and the following tuition support ceiling:

Availment Mode Ceiling (in Php)

Annual ₱20,000.00
Semester ₱10,000.00
Trimester ₱6,000.0018

These tuition support payments are considered advances from the Base Year-end 2004 Entitlement.19

As to the funding for the tuition support, the same shall be sourced from either two (2) ways:

(1) Outright sale of the NAPOCOR bonds and conversion of Dollar proceeds to Peso, up to the equivalent of the tuition support
requirements. The payment of the tuition support will be dependent on the terms and exchange rate under which the bonds are liquidated;
or
(2) Forward sale of the underlying Dollars to a financial institution, which then issues notes credit linked with NAPOCOR Bonds. The
notes can then be sold to interested financial institution to provide for liquidity to fund the requirements for tuition support.20

The creditors/oppositors did not oppose/comment on the Rehabilitation Receiver’s ARP, although the Parents Enabling Parents Coalition,
Inc. (PEPCI) filed with the CA, a Petition for Certiorari with Application for a TRO/Writ of Preliminary Injunction dated February 10, 2006.
As no TRO/Writ of Preliminary Injunction has been issued against the conduct of further proceedings, on April 27, 2006, the Court issued
a Decision21 approving the ARP, which cradled several appeals filed with the CA, and later on, to this Court that are still pending
resolution.22

Nevertheless, respondent commenced with the implementation of its ARP in coordination with, and with clearance from, the Rehabilitation
Receiver.23

In the meantime, the value of the Philippine Peso strengthened and appreciated. In view of this development, and considering that the
trust fund of respondent is mainly composed of NAPOCOR bonds that are denominated in US Dollars, respondent submitted a
manifestation with the Rehabilitation Court on February 29, 2008, stating that the continued appreciation of the Philippine Peso has
grossly affected the value of the U.S. Dollar-denominated NAPOCOR bonds, which stood as security for the payment of the Net
TranslatedValues of the PEPTrads.24

Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit dated March 7, 2008, echoing the earlier tenor and
substance of respondent’s manifestation, and praying that the Modified Rehabilitation Plan (MRP) be approved by the Rehabilitation
Court. Under the MRP, the ARP previously approved by the Rehabilitation Court is modified as follows: (a) suspension of the tuition
support; (b) converting the Philippine Peso liabilities to U.S. Dollar liabilities by assigning to each planholder a share of the remaining
asset in proportion to the share of liabilities in 2010; and (c) payments of the trust fund assets in U.S. Dollars at maturity. 25

After the submission of comments/opposition by the concerned parties, the Rehabilitation Court issued a Resolution 26 dated July 28,
2008 approving the MRP. In approving the same, the Rehabilitation Court reasoned that in view of the "cram down" power of the
rehabilitation court under Section 23 of the Interim Rules, courts have the power to approve a rehabilitation plan over the objection of
creditors and even when such proposed rehabilitation plan involvesthe impairment of contractual obligations.27

Petitioner questioned the approval of the MRP before the CA on September 26, 2008. It likewise prayed for the issuance of a TRO and
a writ of preliminary injunction to stay the execution of the Resolution dated July 28, 2008. 28

In dismissing or denying the Petition for Review, the CA held that: (a) petitioner did not pay the proper amount of docket fees; (b) a
Petition for Review under Rule 43 is an improper remedy to question the approval of a modified rehabilitation plan; (c) contrary to
petitioner’s claim, the alterations in the MRP are consistent with the goalsof the ARP; and (d) the approval of the MRP did not amount to
an impairment of the contract between petitioner and respondent. The falloof the assailed Decision 29 states:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DENYING or DISMISSING the petition for review
filed in this case and AFFIRMING the corporate rehabilitation Court’s Resolution dated July 28, 2008 in Special Proceeding No. M-
6059.30 Unfortunately for petitioner, despite its motion for reconsideration, the CA denied the same on July 21, 2010. 31

Hence, this Petition for Review on Certiorariraising the following grounds:

The Court of Appeals rendered a decision contrary to law and not in accord with the applicable decisions of the Supreme Court when it
sustained the Rehabilitation Court’s approval of the Modified Rehabilitation Plan.

II

The Court of Appeals rendered a decision contrary to law when it ruled that a Petition for Review was an improper remedy to question a
final order of the Rehabilitation Court approving the Modified Rehabilitation Plan.

III

The Court of Appeals rendered a decision not in accord with the issuances of the Supreme Court and the usual course of judicial
proceedings when it declared that Petitioner had not paid the proper amount of filing and docket fees, despite the fact that, as clearly
shown in the receipts presented by petitioner, the proper amount of filing fees were paid.32

In its Comment dated October 23, 2006, respondent raised various procedural infirmities on the petition warranting its dismissal, to wit:
(1) the assailed decision has become final and executory for failure of petitioner to timely serve a copy of the Petition for Time upon the
CA in violation of Section 3, Rule 45 of the Rules of Court; (2) petitioner’s motion for reconsideration on the questioned decision raises
no new arguments; thus, is merely pro formaand did not toll the running of the reglementary period; (3) a petition for review under Rule
43 of the Rules of Court is an improper mode to question the MRP; and (4) petitioner failed to pay the appropriate amount of docket fees
when she filed the Petition for Review with the CA.33

On procedural grounds, this Court finds for the petitioner.

First. Respondent asseverates that the CA correctly held that the Petition for Review under Rule 43 of the Rules of Court is an improper
mode to question the Resolution approving the MRP, since the same constitutes merely as an interlocutory order and, therefore, a proper
subject of a certiorari case under Rule 65 of the Rules of Court. On the other hand, petitioner counters that such Resolution isa final order
with respect to the approval of the MRP; hence, her recourse to a Petition for Review under Rule 43 of the Rules of Court was proper.
Petitioner further argues that such remedy is clearly in line with the directive of AM No. 04-9-07-SC,34 which took effect on October 15,
2004 and, therefore, was the correct rule on appeals prevailing at the time petitioner filed her petition with the CA. 35

Petitioner’s contention is impressed with merit.

It bears emphasis that the governing rule at the time respondent filed its petition for rehabilitation was the Interim Rules, which does not
expressly state the mode of appeal from the decisions, orders and resolutions of the Rehabilitation Court, either prior or after the approval
of the rehabilitation plan. Accordingly, this Court issued a Resolution, A.M. No. 04-9-07-SC,36 which lays down the proper mode of appeal
in cases involving corporate rehabilitation and intra-corporate controversies in order to prevent cluttering the dockets of the courts with
appeals and/or petitions for certiorari. The first paragraph thereof provides:

1. All decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation and the Interim Rules of Procedure
Governing Intra-Corporate Controversies under Republic Act No. 8799 shall be appealable to the Court of Appeals through a petition for
review under Rule 43 of the Rules of Court.37

Under the said Resolution, all decisions and final orders of the rehabilitation court, regardless of whether they are issued before or after
the approval of the rehabilitation court, shall be brought on appeal to the CA via a petition for review under Rule 43 of the Rules of Court.

Subsequently, the Supreme Court issued A.M. No. 00-8-10-SC38 (Rehabilitation Rules), which took effect on January 16, 2009,
embodying the rehabilitation rules applicable to petitions for rehabilitation of corporations, partnerships and associations pursuant to P.D.
No. 902-A, as amended. Section 1, Rule 8 thereof unequivocally states:

SEC. 1. Motion for Reconsideration. — A party may file a motion for reconsideration of any order issuedby the court prior to the approval
of the rehabilitation plan. No relief can be extended to the party aggrieved by the court’s order on the motion through a special civil action
for certiorari under Rule 65 of the Rules of Court. Such order can only be elevated to the Court of Appeals as an assigned error in the
petition for review of the decision or order approving or disapproving the rehabilitation plan.

An order issued after the approval of the rehabilitation plan can be reviewed only through a special civil action for certiorari under Rule
65 of the Rules of Court.39

While We agree with respondent that the later rule states that orders issued after the approval of the rehabilitation plan can be reviewed
only through a special civil action for certiorari under Rule 65 of the Rules of Court, such rule does not apply to the instant case as the
same was not yet in effect at the time petitioner filed her Petition for Review with the CA. Stated otherwise, the prevailing law at the time
petitioner filed said petition with the CA is the Interim Rules as well as A.M. No. 04-9-07-SC. As such, the proper remedy of appeal from
all decisions and final orders of the RTC was Rule 43 of the Rules of Court, and not Rule 65 thereof.

In any case, We cannot also subscribe to respondent’s view that the approval of the MRP is merely an interlocutory order. In Alma Jose
v. Javellana,40 We have already defined a final order as one that puts an end to the particular matter involved, or settles definitely the
matter therein disposed of, as to leave nothing for the trial court to do other than to execute the order. 41 Here, it cannot be gainsaid that
the Resolution approving the MRP is a final order with respect to the validity thereof, specifically on the following issues: (1) the suspension
of the tuition support; (2) conversion of Philippine Peso entitlements to U.S. Dollar entitlements; and (3) the payments in U.S. Dollars
upon maturity in 2010. In this regard, the issue as to its alleged infringement on the non-impairment clause under the Constitution has
likewise been settled. The doctrine laid down in New Frontier Sugar Corp. v. Regional Trial Court Branch 39, Iloilo City, 42 cannot be used
to counter the foregoing because in that case, the Court merely stressed that an original action for certiorarimay be directed against an
interlocutory order of the lower court prior to an appeal from the judgment; or where there is no appeal or any plain, speedy or adequate
remedy.43 New Frontier does not categorically preclude the filing of a petition for review under Rule43 for decisions or orders issued after
the approval of the rehabilitation plan such as a modification thereof.

Second. We find respondent’s contention on the non-payment of the docket fees devoid of merit because the records rather show that
petitioner had, in fact, paid the appropriate amount of docket fees for her Petition with the CA and her application for a TRO on September
12, 2008. To support this allegation, petitioner attached copies of official receipts, representing the fees she has paid in the aggregate
amount of Four Thousand Six Hundred Eighty Pesos (₱4,680.00). Third. With respect to respondent’s allegation that petitioner violated
Section 2,44 in relation to Section 3,45 Rule 45 of the Rules of Court, in particular the failure of petitioner to serve a copy ofits petition for
time with the CA within the prescribed period, the same is mislaid.
A careful examination of the records will show that said petition was personally served on the CA on August 17, 2010, within the prescribed
period pursuant to Sections 2 and 3, Rule 45 of the Rules of Court. This is the most logical explanation since the Manifestation regarding
such service, together with the attached Petition for Time, was filed on August 18, 2010. Thus, the date "August 27, 2010" on the stamp
of the CA is clearly a clerical error and respondent’s assertion that the CA was not timely served the Petition for Time is erroneous.

Similarly, owing to the significance of the issues raised in the instant case, We rule that any lapse on the filing of the motion for
reconsideration with the CA is not grave enough to dismiss the instant petition on technical grounds. Moreover, it is settled that although
a motion for reconsideration may merely reiterate issues already passed upon by the court, that, by itself, does not make it pro forma. In
fact, the CA did not declare said motion for reconsideration as pro forma when it denied the same. Hence, considering that the motion for
reconsideration is not pro forma and a mere scrap of paper, its filing tolled the running period of appeal pursuant to Section 2,46 Rule 37
of the Rules of Court.

Fourth. Anent the Verification and Certification against Forum Shopping of the instant petition, we recognize that petitioner failed to comply
with Section 6, Rule II of A.M. No. 02-8-13-SC, otherwise known as the Rules on Notarial Practice of 2004 (Notarial Rules), which provides
that in order for a jurat to be valid, the following requirements should be present:

SEC. 6. Jurat. - "Jurat" refers to an act in which an individual on a single occasion:

(a) appears in person before the notary public and presents an instrument or document;

(b) is personally known to the notary public or identified by the notary public through competent evidence of identityas defined
by these Rules;

(c) signs the instrument ordocument in the presence of the notary; and

(d) takes an oath or affirmation before the notary public as to such instrument or document. 47 as well as Section 12, Rule II of
the Notarial Rules, which defines what constitutes competent evidence of identity, to wit –

SEC. 12. Competent Evidence of Identity. - The phrase "competent evidence of identity" refers to the identification of an individual based
on:

(a) at least one current identification document issued by an official agency bearing the photograph and signature of the
individual; or

(b) the oath or affirmation of one credible witness not privy to the instrument, document or transaction who is personally known
to the notary public and who personally knows the individual, or of two credible witnesses neither of whom is privy to the
instrument, document or transaction who each personally knows the individual and shows to the notary public documentary
identification.

While we agree with the observation of respondent that in the instant Petition, the Verification and Certification against Forum Shopping
attached thereto is defective because the jurat thereof does not contain the required competent evidence of identity of the affiant, petitioner
herein, such omission may be overlooked in the name of judicial leniency, in order to give this Court an avenue to dispose of the
substantive issues of this case.

As to respondent’s allegation that the instant petition contained a false Certification of Non-Forum Shopping since the same failed to
disclose the pendency of a related petition pending before the CA, the same warrants scant consideration.

While it would appear that there is substantial identity ofparties, since both petitioner and PEPCI are creditors of respondent and both are
questioning the Rehabilitation Court’s approval of the MRP, the identity of cause of action is absent in the present case. An assiduous
scrutiny of the respondent’s Petition for Review with the CA and PEPCI’s Petition for Review dated September 3, 2008, also filed with
the CA, will show that they raised different causes of action. In Majority Stockholders of Ruby Industrial Corporation v. Lim,48 we have
reiterated that no forum shopping exists when two (2) groups of oppositors in a rehabilitation case act independently of each other, even
when they have sought relief from the same appellate court, thus:

On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87. Thus:

We hold that private respondents are not guilty of forum shopping. In Ramos, Sr. v. Court of Appeals, we ruled:

"The private respondents can be considered to have engaged in forum shopping if all of them, acting as one group, filed identical special
civil actions in the Court of Appeals and in this Court. There must be identity of parties or interests represented, rights asserted and relief
sought in different tribunals. In the case at bar, two groups of private respondents appear to have acted independently of each other when
they sought relief from the appellate court. Both groups sought relief from the same tribunal.
"It would not matter even if there are several divisions in the Court of Appeals. The adverse party can always ask for the consolidation of
the two cases. x xx"

In the case at bar, private respondents represent different groups with different interests - the minority stockholders' group, represented
by private respondent Lim; the unsecured creditors group, Allied Leasing & Finance Corporation; and the old management group. Each
group has distinct rights to protect. In line with our ruling in Ramos, the cases filed by private respondents should be consolidated. In fact,
BENHAR and RUBY did just that - in their urgent motions filed on December 1, 1993 and December 6, 1993, respectively, they prayed
for the consolidation of the cases before the Court of Appeals. 49

In any case, this Court resolves tocondone any procedural lapse in the interest of substantial justice given the nature of business of
respondent and its overreaching implication to society.To deny this Court of its duty to resolve the substantive issues would be tantamount
to judicial tragedy as planholders, like petitioner herein, would be placed in a state of limbo as to its remedies under existing laws and
jurisprudence.

Indeed, where strong considerations of substantive justice are manifest in the petition, the strict application of the rules of procedure may
be relaxed, in the exercise of its equity jurisdiction.50 Thus, a rigid application of the rules of procedure will not be entertained if it will only
obstruct rather than serve the broader interests of justice in the light of the prevailing circumstances in the case under consideration.51 It
is a prerogative duly embedded in jurisprudence, as in Alcantara v. Philippine Commercial and International Bank, 52 where the Court had
the occasion to reiterate that:

x x x In appropriate cases, the courts may liberally construe procedural rules in order to meet and advance the cause of substantial
justice. Lapses in the literal observation of a procedural rule will be overlooked when they do not involve public policy, when they arose
from an honest mistake or unforeseen accident, and when they have not prejudiced the adverse party or deprived the court of its authority.
The aforementioned conditions are present in the case at bar. x x x x

There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the
rules of procedure. In these cases, weruled that the subsequent submission of the missing documents with the motion for reconsideration
amounts to substantial compliance. The reasons behind the failure of the petitioners in these two cases to comply with the required
attachments were no longer scrutinized. What we found noteworthy in each case was the fact that the petitioners therein substantially
complied with the formal requirements. We ordered the remand of the petitions in these cases to the Court of Appeals, stressing the ruling
that by precipitately dismissing the petitions "the appellate court clearly put a premium on technicalities at the expense of a just resolution
of the case."

While it is true that the rules of procedure are intended to promote rather than frustrate the ends of justice, and the swift unclogging of
court docket is a laudable objective, it nevertheless must not be met at the expense of substantial justice. This Court has time and again
reiterated the doctrine that the rules of procedure are mere tools aimed at facilitating the attainment of justice, rather thanits frustration.
A strict and rigid application of the rules must alwaysbe eschewed when it would subvert the primary objective of the rules, that is, to
enhance fair trials and expedite justice. Technicalities should never beused to defeat the substantive rights of the other party. Every party-
litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the constraints of
technicalities. Considering that there was substantial compliance, a liberal interpretation of procedural rules in this labor case is more in
keeping with the constitutional mandate to secure social justice. 53

Notwithstanding our liberal interpretation of the rules, the instant petition must fail on substantive grounds.

Petitioner contends that the MRP is ultra vires insofar as it reduces the original claim and even the original amount that petitioner was to
receive under the ARP.54 She also claims that it was beyond the authority of the Rehabilitation Court to sanction a rehabilitation plan, or
the modification thereof, when the essential feature of the plan involves forcing creditors to reduce their claims against respondent.55

Petitioner’s argument is misplaced. The "cram-down" power of the Rehabilitation Court has long been established and even codified
under Section 23, Rule 4 of the Interim Rules, to wit: Section 23. Approval of the Rehabilitation Plan. – The court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation
of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.

Such prerogative was carried over inthe Rehabilitation Rules, which maintains that the court may approve a rehabilitation plan over the
objection of the creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly
unreasonable. The required number of creditors opposing such plan under the Interim Rules (i.e.,those holding the majority of the total
liabilities of the debtor) was, in fact, removed. Moreover, the criteria for manifest unreasonableness is spelled out, to wit:

SEC. 11. Approval of Rehabilitation Plan. — The court may approve a rehabilitation plan even over the opposition of creditors of the
debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The
opposition of the creditors is manifestly unreasonable if the following are present:

(a) The rehabilitation plan complies with the requirements specified in Section 18 of Rule 3; 56 (b) The rehabilitation plan would
provide the objecting class of creditors with payments whose present value projected in the plan would be greater than that
 which they would have received if the assets of the debtor were sold by a liquidator within a six (6)month period from the date
of filing of the petition; and

(c) The rehabilitation receiver has recommended approval of the plan.

In approving the rehabilitation plan, the court shall ensure that the rights of the secured creditors are not impaired. The court shall also
issue the necessary orders or processes for its immediate and successful implementation. It may impose such terms, conditions, or
restrictions as the effective implementation and monitoring thereof may reasonably require, or for the protection and preservation of the
interests of the creditors should the plan fail. 57

This legal precept is not novel and has, in fact, been reinforced in recent decisions such as in Bank of the Philippine Islands v. Sarabia
Manor Hotel Corporation,58 where the Court elucidated the rationale behind Section 23, Rule 4 of the Interim Rules, thus:

Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules) states that a rehabilitation plan may be approved even over the opposition of the creditors holding a majority of the
corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors is manifestly
unreasonable. Also known as the "cram-down" clause, this provision, which is currently incorporated in the FRIA, is necessary to curb
the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater
long-term benefit of all stakeholders. Otherwise stated, it forces the creditors toaccept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but incomplete recovery.59

as well as in Pryce Corporation v. China Banking Corporation, 60 to wit:

In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation was filed in 2004 adopts the
cramdown principle which "consists of two things: (i) approval despite opposition and (ii) binding effect of the approved plan x x x."

First, the Interim Rules allows the rehabilitation court to "approve a rehabilitation plan even over the opposition of creditors holding a
majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors
is manifestly unreasonable."

Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions "shall be binding upon the debtor and
all persons who may be affected by it, including the creditors, whether or not such persons have participated inthe proceedings or opposed
the plan or whether or not their claims have been scheduled."

Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and executory resulting from the resolution of BPI
v. Pryce Corporation docketed as G.R. No. 180316, binds all creditors including respondent China Banking Corporation. 61

Based on the aforequoted doctrines, petitioner’s outright censure of the concept of the cram-down power of the rehabilitation court cannot
be countenanced. To adhere to the reasoning of petitioner would be a step backward — a futile attempt to address an outdated set of
challenges. It is undeniable that there is a need to move to a regime of modern restructuring, cram-down and court supervision in the
matter of corporation rehabilitation in order to address the greater interest of the public. This is clearly manifested in Section 64 of Republic
Act (R.A.) No. 10142, otherwise known as Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the latest law on corporate
rehabilitation and insolvency, thus:

Section 64. Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the creditors and stakeholders that the Plan
is ready for their examination. Within twenty (2Q) days from the said notification, the rehabilitation receiver shall convene the creditors,
either as a whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless approved by
all classes of creditors w hose rights are adversely modified or affected by the Plan. For purposes of this section,the Plan is deemed
tohave been approved by a class of creditors if members of the said class holding more than fifty percent (50%) of the total claims of the
said class vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their respective claims based on
the registry of claims submitted by the rehabilitation receiver pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if all of the following circumstances
are present:

(a)The Rehabilitation Plan complies with the requirements specified in this Act;

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interestas a result of the
Rehabilitation Plan; and
 (d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value
greater than that which they would have received if the debtor were under liquidation.62

While the voice and participation of the creditors is crucial in the determination of the viability of the rehabilitation plan, as they stand to
benefit or suffer in the implementation thereof, the interests of all stakeholders is the ultimate and prime consideration. Thus, while we
recognize the predisposition of the planholders in vacillating on the enforcement of the MRP, since the terms and conditions stated therein
have been fundamentally changed from those stated in the Original and Amended Rehabilitation Plan, the MRP cannot be considered
an abrogation of rights to the planholders/creditors.

First. An examination of the changes proposed in the MRP would confirm that the same is, in fact, an effective risk management tool
intended to serve both the interests of respondent and its planholders/creditors.

It is a matter of fact and record that the Philippine Peso unexpectedly and uncharacteristically strengthened and appreciated from Fifty-
Two and 02/100 Pesos (Php52.02) to One U.S. Dollar (USD1.00) at the time of the approval of the ARP to Forty and (63)/100 Pesos
(Php40.63) to One U.S. Dollar (USD1.00) as of March 7, 2008, the day the Rehabilitation Receiver filed his Manifestation with Motion to
Admit praying for the approval of the MRP.63 There is no gainsaying that during this period, the value of the U.S. Dollar-denominated
NAPOCOR bonds — the assets covering the trust fund subject of the traditional education plan — has already been substantially diluted
because of the stronger value of the Philippine Peso vis-à-visthe U.S. Dollar from the time of the approval of the ARP.64 As succinctly
held by the RTC in its Resolution dated July 28, 2008, to wit:

First, there is in tr[u]th no quibble that the Philippine Peso has behaved in an uncharacteristic mannerby appreciating significantly vis-àvis
the United States Dollar. This fact is not disputed by any of the parties. Further, the Court takes cognizance that at the time the Alternative
Rehabilitation Plan was approved on 27 April 2006, the exchange rate was Php52.02/US$1.00. As of 15 July 2008, the exchange rate
was Php45.35/US$1.00, or an appreciation of atleast fourteen percent (14%). Since the NAPOCOR Bonds are denominated in United
States dollars, it means that the NAPOCOR Bonds have losttheir original value by at least fourteen percent (14%) since the approval of
the Alternative Rehabilitation Plan on 27 April 2006. Ergo, the continued payment of tuition support in Philippine Pesos will lead to the
certainty of the trust fund being substantially diluted when the planholders avail of the same upon maturity of the NAPOCOR Bonds in
2010.65

This defense mechanism is reasonable because sustaining the current terms of the ARP would render the trust fund of no value given
the high probability of its dilution. Resultantly, the very foundation of the rehabilitation plan, which is to minimize the loss of all stakeholders,
would be rendered in futile since the trust funds may no longer be sufficient to meet the basic terms of the ARP.

In addition, the MRP merely establishes the planholders’ claim on a percentage/pro rata share of the assets of the trust fund. It does not,
in any way, diminish the value of their claims or their share in the proverbial pie. The propriety of this theory was recognized by the
Rehabilitation Court, to wit:

Second, the conversion of the Philippine Peso entitlements into United States Dollar entitlements would not diminish the pro rata share
of the planholders. Each planholder would still receive his proportionate share of the pie, so to speak, albeitin United States Dollars. The
said conversion would merely ensure that regardless of the performance of the Philippine Pesos, planholders of petitioner PPI are
guaranteed payment upon maturity of the NAPOCOR Bonds, without fear that their share will be substantially diluted. In fact, the
planholders may even benefit from this modification in the rehabilitation plan if the United States dollars appreciates in 2010. 66

As can be gleaned from the foregoing, the modification guarantees that each planholder has an adequate return on his/her investment
regardless of changes in the surge of the Philippine economy. 67

We, therefore, agree with respondent that the proposed modification seeks to establish a balance between adequate returns to the
planholders/creditors, while ensuring that respondent shall be an on-going concern that can eventually undergo normal operations after
the implementation of the MRP.68

Second. The recommendation of the Rehabilitation Receiver cannot simply be unsung without violating the basic tenet of Section 14,
Rule 4 of the Interim Rules, which provides the powers and functions of the Rehabilitation Receiver, thus:

Sec. 14. Powers and Functions of the Rehabilitation Receiver. - The Rehabilitation Receiver shall nottake over the management and
control of the debtor but shall closely oversee and monitor the operations of the debtor during the pendency of the proceedings, and for
this purpose shall have the powers, duties and functions of a receiver under Presidential Decree No. 902-A, as amended, and the Rules
of Court.

x x x Accordingly, he shall have the following powers and functions:

xxxx

(j) To monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor's business;
xxxx

(l) To determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders, and the
general public;

xxxx

(v) To recommend any modification of an approved rehabilitation plan as he may deem appropriate;

(w) To bring to the attention of the court any material change affecting the debtor's ability to meet the obligations under the rehabilitation
plan;

x x x.69

As correctly recognized by the Rehabilitation Court in its Resolution dated July 28, 2008, the Rehabilitation Receiver has the duty and
authority to recommend any modification of an approved rehabilitation plan as he may deem appropriate and for the purpose of achieving
the desired targets or goals set forth therein, thus:

It is the strenuous proposition of the CARR that under the Interim Rules, he has the duty to recommend any modification of an approved
rehabilitation plan as he may been appropriate. Ex concesso, the Court recognizes that under Rule 4, Section 26 of the Interim Rules, an
approved rehabilitation plan may be modified if, in the judgment of the Court, such modification is necessary to achieve the desired targets
or goals set forth therein.70

The Rehabilitation Rules allow the modification and alteration of the rehabilitation plan precisely because ofconditions that may supervene
or affect the implementation thereof subsequent to its approval. In the case at bar, to force through with the tuition support would surely
jeopardize the implementation of the ARP in the long-run since it would not be feasible to keep on liquidating the NAPOCOR Bonds.

Third. We confirm that there is a substantial likelihood for respondent to be successfully rehabilitated considering that its business remains
viable and is operating on a going-concern premise.

A careful reading of the records will show that respondent’s liquidity problems were mostly caused by the deregulation of the education
sector, which triggered sharp increases in tuition fees of schools and universities beyond what was projected by pre-need companies
dealing with traditional educational plans. Surely, we are mindful of the financial distress in 1997, which has destroyed various institutions
not only in the Philippines but across Asia, further compromising the pre-need industry’s ability to meet its obligations under the PEPTrads.
The surrounding circumstances of the time was peculiar and may no longer be pertinent at present.

Thus, pointing fingers to respondent at this point for its alleged mismanagement of assets would be irrational, and even counter-
productive, because the feasibility of respondent’s rehabilitation has already been duly established by the Rehabilitation Court. A
subsequent allegation to the contrary has no leg to stand on. Conversely, by virtue of the corporate rehabilitation, respondentwill have
enough breathing room to improve its operations in order to sustain its business operations and at the same time, settle all its outstanding
obligations in a just and fair manner, in accordance with the MRP. In this regard, We find reason in respondent’s contention that the MRP
will not only be beneficial to itself, but also to its planholders and creditors as well. Anent petitioner’s argument that the approval of the
MRP is offensive to the non-impairment clause of the Constitution, the same fails to persuade.

Petitioner’s interpretation of Section 37 of the Rehabilitation Rules vis-à-vis the means within which a rehabilitation plan may be pursued,
is misplaced. As held in a plethora of cases, a rehabilitation plan may involve a reduction of liability. On this score, the principle enunciated
in Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc.,71 is instructive, thus –

The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover, per findings of fact of the RTC and as affirmed by
the CA, the restructuring of the debts of PALI would not be prejudicial to the interest of PWRDC as a secured creditor. Enlightening is the
observation of the CA in this regard, viz.:

There is nothing unreasonable or onerous about the 50% reduction of the principal amount when, as found by the court a quo, a Special
Purpose Vehicle (SPV) acquired the credits of PALI from its creditors at deep discounts of as much as 85%. Meaning, PALI’s creditors
accepted only 15% of their credit’s value. Stated otherwise, if PALI’s creditors are in a position to accept 15% of their credit’s value, with
more reason that they should be able to accept 50% thereof as full settlement by their debtor. x x x. 72

Here, petitioner’s claim is not cancelled or obliterated all together.1awp++i1 Contrary to her view, petitioner’s claim isin fact restructured
in a way that would allow respondent to revive its financial health while offering the optimal returns to its clients.

It is undisputable that the corporation is in the process of corporate rehabilitation precisely because it is undergoing financial distress.
Petitioner cannot expect to receive the contracted amount owed by respondent because a modification of the terms and conditions of the
contract is certainly foreseeable and reasonable in a corporate rehabilitation case, as correctly held by the Rehabilitation Court, to wit:
x x x It is an established principle in rehabilitation proceedings that rehabilitation courts have the cram down power to approve
rehabilitation plans even over the objections of creditors, which cram down power shall nonetheless bind the latter. In fact, the CARR is
given the authority to "notify counterparties and the court asto contracts that the debtor has decided to continue to perform or breach." A
fortiori, the mere impairment of contracts is not a justification to question the modification of a rehabilitation plan because the very nature
of rehabilitation proceedings sometimes necessitates such a course of action. 73

Indeed, the rights of petitioner arising from the contracts it entered with respondent are not in any way weakened by the approval of the
ARP, and then the MRP, despiteany reduction in the amount of the obligation due to petitioner. As enunciated in Pacific Wide, 74 the
reduction of the debt of the debtor is one of the essential features of a rehabilitation case, and is not considered prejudicial to the interest
of a secured creditor, thus:

We find nothing onerous in the terms of PALI's rehabilitation plan. The Interim Rules on Corporate Rehabilitation provides for means of
execution of the rehabilitation plan, which may include, among others, the conversion of the debts or any portion thereof to equity,
restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest.

The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover, per findings offact of the RTC and as affirmed by
the CA, the restructuring of the debts of PALI would notbe prejudicial to the interest of PWRDC as a secured creditor. Enlightening is the
observation of the CA in this regard, viz.:

There is nothing unreasonable or onerous about the 50% reduction of the principal amount when, as found by the court a quo, a Special
Purpose Vehicle (SPV) acquired the credits of PALI from its creditors at deep discounts of as much as 85%. Meaning, PALI's creditors
accepted only 15% of their credit's value. Stated otherwise, if PALI's creditors are in a position to accept 15% of their credit's value, with
more reason that they should be able to accept 50% thereof as full settlement by their debtor. x x x.

We also find no merit in PWRDC’s contention that there is a violation of the impairment clause. Section 10, Article III of the Constitution
mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or an executive issuance
declaring the modification of the contract among debtor PALI, its creditors and its accommodation mortgagors. Thus, the non-impairment
clause may not be invoked. Furthermore, as held in Oposa v. Factoran, Jr.even assuming that the same may be invoked, the non-
impairment clause must yield to the police power of the State. Property rights and contractual rights are not absolute. The constitutional
guaranty of nonimpairment of obligations is limited by the exercise of the police power of the State for the common good of the general
public.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in
general.1âwphi1 The court may approve a rehabilitation plan evenover the opposition of creditors holding a majority of the total liabilities
of the debtor if, in its judgment, the rehabilitation of the debtor isfeasible and the opposition of the creditors is manifestly unreasonable.
The rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors,
whether or not such persons have participated in the proceedings or have opposed the plan or whether or not their claims have been
scheduled.75

Similarly, the reasoning laid down by the CA for the application of the cram-down power of the Rehabilitation Court is enlightening, thus:

This Court likewise rejects petitioner Aquino’s claims that the Modified Rehabilitation Plan constitutes an impairment of contracts. The
non-impairment clause under the Constitution applies only to the exercise of legislative power. It does not apply to the Rehabilitation
Court which exercises judicial power over the rehabilitation proceedings. As held by the Supreme Court in Bank of the Philippine Islands
vs. Securities and Exchange Commission, [G.R. No. 164641, December 20, 2007:

"The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to contract. As correctly contended by
private respondents, the nonimpairment clause is a limit on the exercise of legislative power and not of judicial or quasi-judicial power.
The SEC, through the hearing panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi judicial body
and thus, its order approving the plan cannot constitute an impairment of the right and the freedom to contract."76

In view of all of the foregoing, We find no basis to overturn the findings of the CA with respect to the substantive issues in this case.
Accordingly, the prayer for the issuance of a TRO and/or a writ of preliminary injunction must necessarily fail.

A final note. The evolving times of corporate rehabilitation, owing to the rise and fall of economic activity over time, calls on the Judiciary
to take an active role in filling in the gaps of the law pertaining to this issue as the inimitable factual milieu of each ca se would require a
different approach in the application of prevailing laws, rules and regulations on corporate rehabilitation. In the case at bar, we hold that
the modification of the rehabilitation plan is a risk management tool to address the volatility of the exchange rate of the Philippine Peso
vis-à-vis the U.S. Dollars, with the goal of ensuring that all planholders or creditors receive adequate returns regardless of the tides of the
Philippine market by making payment in U.S. Dollars. This plan would prevent the trust fund of respondent from being diluted due to the
appreciation of the Philippine Peso and assure that all planholders and creditors shall receive payment upon maturity of the NAPOCOR
bonds in the most equitable manner.

WHEREFORE, the petition is DENIED. The February 26, 2010 Decision and July 21, 2010 Resolution of the Court of Appeals in CA-G.R.
SP No. 105237 are hereby AFFIRMED.
SO ORDERED.

G.R. No. 205469

(2) BPI FAMILY SAVINGS BANK, INC., Petitioner,

vs.
ST. MICHAEL MEDICAL CENTER, INC., Respondent.

Before the Court is a petition for review on certiorari1 assailing the Decision2 dated August 30, 2012 and the Resolution3 dated January
18, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 121004 which affirmed the approval of the Rehabilitation Plan of respondent
St. Michael Medical Center, Inc. (SMMCI) by the Regional Trial Court of Imus, Cavite, Branch 21 (RTC) through its Order 4 dated August
4, 2011 in SEC Case No. 086-10.

The Facts

Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors of St. Michael Diagnostic and Skin Care Laboratory
Services and Hospital (St. Michael Hospital), a 5-storey secondary level hospital built on their property located in Molino 2, Bacoor, Cavite.
With a vision to upgrade St. Michael Hospital into a modern, well-equipped and full service tertiary 11-storey hospital, Sps. Rodil
purchased two (2) parcels of land adjoining their existing property and, on May 22, 2003, incorporated SMMCI, with which entity they
planned to eventually consolidate St. Michael Hospital’s operations. SMMCI had an initial capital of 2,000,000.00 which was later
increased to 53,500,000.00, 94.49% of which outstanding capital stock, or 50,553,000.00, was subscribed and paid by Sps. Rodil.5

In May 2004, construction of a new hospital building on the adjoining properties commenced, with Sps. Rodil contributing personal funds
as initial capital for the project which was estimated to cost at least 100,000,000.00. 6 To finance the costs of construction, SMMCI applied
for a loan with petitioner BPI Family Savings Bank, Inc. (BPI Family) which gave a credit line of up to 35,000,000.00, 7 secured by a Real
Estate Mortgage8 (mortgage) over three (3) parcels of land9 belonging to Sps. Rodil, on a portion of which stands the hospital building
being constructed. SMMCI was able to draw the aggregate amount of 23,700,000.00, 10 with interest at the rate of 10.25% per annum
(p.a.) and a late payment charge of 3% per month accruing on the overdue amount, for which Sps. Rodil, who agreed to be co-borrowers
on the loan, executed and signed a Promissory Note.11

In the meantime, after suffering financial losses due to problems with the first building contractor, 12 Sps. Rodil temporarily deferred the
original construction plans for the 11-storey hospital building and, instead, engaged the services of another contractor for the completion
of the remaining structural works of the unfinished building up to the 5th floor. In this regard, they spent an additional 25,000,000.00, or
a total of 55,000,000.00 for the construction. The lack of funds for the finishing works of the 3rd, 4th and 5th floors, however, kept the
new building from becoming completely functional and, in turn, hampered the plans for the physical transfer of St. Michael Hospital’s
operations to SMMCI. Nevertheless, using hospital- generated revenues, Sps. Rodil were still able to purchase new equipment and
machinery for St. Michael Hospital valued in excess of 20,000,000.00.13

Although the finishing works were later resumed and some of the hospital operations were eventually transferred to the completed first
two floors of the new building, as of May 2006, SMMCI was still neither operational nor earning revenues. Hence, it was only able to pay
the interest on its BPI Family loan, or the amount of 3,000,000.00 over a two-year period, from the income of St. Michael Hospital.14

On September 25, 2009, BPI Family demanded immediate payment of the entire loan obligation 15 and, soon after, filed a petition for
extrajudicial foreclosure16 of the real properties covered by the mortgage. The auction sale was scheduled on December 11, 2009, which
was postponed to February 15, 2010 with the conformity of BPI Family. 17

On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation18 (Rehabilitation Petition), docketed as SEC Case No. 086-10,
before the RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of meeting its obligation to BPI Family, its
purported sole creditor.19

In the said petition, SMMCI claimed that it had to defer the construction of the projected 11-storey hospital building due to the problems
it had with its first contractor as well as the rise of the cost of construction materials. As of date, only two (2) floors of the new building are
functional, in which some of the operations of St. Michael had already been transferred.20

Also, it was alleged that more than 66,000,000.00 had been spent for the construction of the existing structure (in excess of its
proportionate share of the original estimated cost for the entire project), said amount having come from the personal funds of Sps. Rodil
and/or income generated by St. Michael Hospital, aside from the drawings from the credit line with BPI Family. At the same time, Sps.
Rodil continued to shoulder the costs of equipment and machinery amounting to 20,000,000.00, in order to build up the hospital’s medical
capabilities. However, since SMMCI was neither operational nor earning revenues, it could only pay interest on the BPI Family loan, using
St. Michael Hospital’s income, over a two-year period.21

Further, it was averred that while St. Michael Hospital – whose operations were to be eventually absorbed by SMMCI – was operating
profitably, it was saddled with the burden of paying the loan obligation of SMMCI and Sps. Rodil to BPI Family, which it cannot service
together with its current obligations to other persons and/or entities. The situation became even more difficult when the bank called the
entire loan obligation which, as of November 16, 2009, amounted to 52,784,589.34 (net of unapplied payment), consisting of: ( a) the
principal of 23,700,000.00; (b) accrued interest of 7,048,152.74; and (c) late payment charges amounting to 23,510,400.00. While several
persons approached Sps. Rodil signifying their interest to invest in the corporation, they needed enough time to complete their audit and
due diligence of the company,22 hence, the Rehabilitation Petition.

In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI Family (a) to defer foreclosing on the mortgage and (b) to agree to a
moratorium of at least two (2) years during which SMMCI – either through St. Michael Hospital or its successor – will retire all other
obligations. After which, SMMCI can then start servicing its loan obligation to the bank under a mutually acceptable restructuring
agreement.24 SMMCI declared that it intends to conclude pending negotiations for investments offered by a group of medical doctors
whose capital infusion shall be used (a) to complete the finishing requirements for the 3rd and 5th floors of the new building; (b) to
renovate the old 5- storey building where St. Michael Hospital operates; and (c) to pay, in whole or in part, the bank loan with the view of
finally integrating St. Michael Hospital with SMMCI.25

The Proceedings Before the RTC

Finding the Rehabilitation Petition to be sufficient in form and substance, the RTC issued a Stay Order 26 on August 16, 2010. After the
initial hearing on October 5, 2010, and the filing of comments to the said petition, 27 the same was referred to the court-appointed
Rehabilitation Receiver, Dr. Uriel S. Halum (Dr. Halum), who submitted in due time his Report and Recommendations 28 (Receiver’s
Report) to the RTC on February 17, 2011.29

In the said report, Dr. Halum gave credence to the feasibility study conducted by Mrs. Nenita Alibangbang (Mrs. Alibangbang), a certified
public accountant and Dean of the College of Accountancy at the University of Perpetual Help Dalta, who was commissioned in 2008 to
do a study on the viability of the project, finding that the same was feasible given that St. Michael Hospital, whose operations SMMCI will
eventually absorb, registered outstanding revenue performance for the last seven years of its operation with an average growth rate of
42.21% annually.30Accordingly, Dr. Halum found that SMMCI may be rehabilitated because it is a viable option but, nevertheless, opined
that it will take more than what it had proposed to successfully bring the company back to good financial health considering the finding
that its obligation actually extends beyond the bank, and also includes accounts payable due to suppliers and informal lenders.31 Thus,
he made the following recommendations:

1.The two-year moratorium period to pay the bank is not enough. The Court should seriously consider extending it by another
three years or a total of five (5) years, at least. The bank, whose loan is secured by mortgages on three prime parcels of land
with improvements should discuss restructuring the loan with the creditors with the end in view of stretching the term and allowing
for more flexible rate.

2.Obligations to other creditors such as the suppliers and lenders can be serviced at once. Given the performance of the hospital,
the undersigned reasonably believes that these obligations can be settled in next three (3) years. These accounts can be paid
proportionately provided that [SMMCI] should be allowed to re- structure these accounts to allow for longer and more convenient
payment terms.

3.[SMMCI] should be allowed to spend for the improvement of the building but not necessarily continuing with the planned 11-
storey building. It should make do with what it has but should be permitted to spend reasonable part of the hospital’s revenues
to improve the facilities. For instance, we recommend that the fifth floor of the building should be finished to provide for an
intensive care unit or ICU with equipments (sic) and required facilities. [SMMCI] should also consider spending (sic) an elevator
to make access to and from the higher floors convenient to patients, doctors, nurses and guests. Incidentally, these
improvements should be programmed for the next two to three years. Given the budgetary constraints of the hospital, doing all
these improvements all at once would be impossible.

4.Finally, [SMMCI] should provide for details on its statements regarding the prospective investors. It (sic) true, or in case it
happens, then this fresh capital should be used partly to pay the bank and the rest to improve the hospital to make it more
competitive with the nearby medical service providers.32

On May 26, 2011, the RTC issued an order requiring the counsels of the creditors/oppositors to file their comments to the Receiver’s
Report within ten (10) days from notice, but only counsel for South East Star Enterprises complied.33

The RTC Ruling

In an Order34 dated August 4, 2011, the RTC approved the Rehabilitation Plan with the modifications recommended by the Rehabilitation
Receiver and thus, ordered: (a) a five-year moratorium on SMMCI’s bank loan; (b) a restructuring and payment of obligations to other
creditors such as suppliers and lenders; (c) a programmed spending of a reasonable part of the hospital’s revenues for the finishing of
the 5th floor and the improvement of hospital facilities in the next two or three years; and (d) use of fresh capital from prospective investors
to partly pay SMMCI’s bank loan and improve St. Michael Hospital’s competitiveness. 35

It cited the following considerations which had justified its approval: (1) the Rehabilitation Plan is endorsed by the Rehabilitation Receiver
subject to certain recommendations; (2) the plan ensures preservation of assets and orderly payment of debts; (3) the plan provides for
recovery rates on operating mode as opposed to liquidation values; (4) it contains details for a business plan which will restore profitability
and solvency of petitioner; (5) the projected cash flow can support the continuous operation of the debtor as a going concern; (6) the plan
did not ask for a waiver of the principal; (7) the plan preserves the security of the secured creditor; (8) the plan has provisions to ensure
that future income will inure to the benefit of the creditors; and (9) the rehabilitation of the debtor benefits its employees, creditors,
stockholders and, in a large sense, the general public as it will generate employment and is a potential source of revenue for the
government.36

Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that the approval of the Rehabilitation Plan violated its rights as
an unpaid creditor/mortgagee and that the same was submitted without prior consultation with creditors. 37

The CA Ruling

In a Decision38 dated August 30, 2012, the CA affirmed the RTC’s approval of the Rehabilitation Plan. 39

It found that: (a) the rehabilitation of SMMCI is feasible considering the outstanding revenue performance of St. Michael Hospital, which
it shall absorb, showing its gross profit exceeding its operating expenses and the large probability of increased profitability due to the
favorable economic conditions of the locality; (b) the approval of the Rehabilitation Plan did not amount to an impairment of contract since
there was no directive for the release of the mortgaged properties to which BPI Family is entitled to as a secured creditor but only a
suspension of the provisions of the loan agreements; (c) it is not mandatory for the validity of the Rehabilitation Plan that the Rehabilitation
Receiver should consult with the creditors; and (d) the approval of the Rehabilitation Plan was not made arbitrarily since it was done only
after a review of the pleadings filed and the report submitted by the Rehabilitation Receiver, and its approval was anchored on valid
considerations.40

Dissatisfied, BPI Family moved for reconsideration which was denied in a Resolution 41 dated January 18, 2013, hence, this petition.

The Issue Before the Court

The essential issue in this case is whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.

The Court’s Ruling

The petition is meritorious.

I.

Restoration is the central idea behind the remedy of corporate rehabilitation. In common parlance, to "restore" means "to bring back to or
put back into a former or original state." 42 Case law explains that corporate rehabilitation contemplates a continuance of corporate life
and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the
purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its
earnings.43 Consistent therewith is the term’s statutory definition under Republic Act No. 10142,44 otherwise known as the "Financial
Rehabilitation and Insolvency Act of 2010" (FRIA), which provides:

Section 4. Definition of Terms. – As used in this Act, the term:

xxxx

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that
its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated.

x x x x (Emphasis supplied)

In other words, rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent, i.e., that it is generally unable to pay its debts as they fall due in the ordinary
course of business or has liability that are greater than its assets.45 Thus, the basic issues in rehabilitation proceedings concern the
viability and desirability of continuing the business operations of the distressed corporation,46 all with a view of effectively restoring it to a
state of solvency or to its former healthy financial condition through the adoption of a rehabilitation plan.

In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a position of successful operation and solvency at the
time the Rehabilitation Petition was filed on August 11, 2010. While it had indeed "commenced business" through the preparatory act of
opening a credit line with BPI Family to finance the construction of a new hospital building for its future operations, SMMCI itself admits
that it has not formally operated nor earned any income since its incorporation. This simply means that there exists no viable business
concern to be restored. Perforce, the remedy of corporate rehabilitation is improper, thus rendering the dispositions of the courts
a quoinfirm.
II.

In fact, for the same reasons, the Court observes that SMMCI could not have even complied with the form and substance of a proper
rehabilitation petition, and submit its accompanying documents, among others, the required financial statements of a going concern.
Section 2, Rule 4 of the 2008 Rules of Procedure on Corporate Rehabilitation47 (Rules), which were in force at the time SMMCI’s
rehabilitation petition was filed on August 11, 2010, pertinently provides:

SEC. 2. Contents of Petition. -

xxxx

(b)The petition shall be accompanied by the following documents:

(1)An audited financial statement of the debtor at the end of its last fiscal year;

(2)Interim financial statements as of the end of the month prior to the filing of the petition;

xxxx

Note that this defect is not negated by the submission of the financial documents pertaining to St. Michael Hospital, which is a separate
and distinct entity from SMMCI. While the CA gave considerable weight to St. Michael Hospital’s supposed "profitability," as explicated in
its own financial statements, as well as the feasibility study conducted by Mrs. Alibangbang, 48 in affirming the RTC, it has unwittingly lost
sight of the essential fact that SMMCI stands as the sole petitioning debtor in this case; as such, its rehabilitation should have been
primarily examined from the lens of its own financial history. While SMMCI claims that it would absorb St. Michael Hospital’s operations,
there was dearth of evidence to show that a merger was already agreed upon between them. Accordingly, St. Michael Hospital’s financials
cannot be utilized as basis to determine the feasibility of SMMCI’s rehabilitation.

Note further that while it appears that Sps. Rodil effectively owned and exercised control over the two entities, such fact does not, by and
of itself, warrant their singular treatment for to do so would only confuse the objective of the proceedings which is to ascertain whether
the petitioning corporation, and not any other entity related thereto (except if joining as a co-petitioning debtor), may be rehabilitated.
Neither is the proceeding the proper forum to pierce the corporate fictions of both entities for it involves no creditor claiming to be a victim
of fraud, an essential requisite for the application of such doctrine. 49

In fine, the petition should not have been given due course, nor should a Stay Order have been issued.1âwphi1

III.

To compound its error, the CA even disregarded the fact that SMMCI’s Rehabilitation Plan, an indispensable requisite in corporate
rehabilitation proceedings, failed to comply with the fundamental requisites outlined in Section 18, Rule 3 of the Rules, particularly, that
of a material financial commitment to support the rehabilitation and an accompanying liquidation analysis, all of the petitioning debtor:

SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired business targets or goals and the duration and
coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation,
giving due regard to the interests of secured creditors such as, but not limited, to the non- impairment of their security liens or interests;
(c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan,
which may include debt to equity conversion, restructuring of the debts, dacion en pago or sale exchange or any disposition of assets or
of the interest of shareholders, partners or members; (e) a liquidation analysis setting out for each creditor that the present value
of payments it would receive under the plan is more than that which it would receive if the assets of the debtor were sold by a
liquidator within a six-month period from the estimated date of filing of the petition; and (f) such other relevant information to
enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. (Emphases supplied)

A. Lack of Material Financial Commitment

to Support the Rehabilitation Plan.

A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith of the distressed
corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary undertakings of the stockholders
or the would- be investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the period of rehabilitation.50

In this case, aside from the harped on merger of St. Michael Hospital with SMMCI, the only proposed source of revenue the Rehabilitation
Plan suggests is the capital which would come from SMMCI’s potential investors, which negotiations are merely pending. Evidently, both
propositions commonly border on the speculative and, hence, hardly fit the description of a material financial commitment which would
inspire confidence that the rehabilitation would turn out to be successful. In fact, the Rehabilitation Receiver himself reco gnizes the
ambiguity of the proposition when he recommended that:

[T]he petitioner should provide for details on its statements regarding the prospective investors. If true or in case it happens, then this
fresh capital should be used partly to pay the bank and the rest, to improve the hospital to make it more competitive with the nearby
medical service providers.51

In the same manner, the fact that St. Michael Hospital had previously made payments for the benefit of SMMCI is not enough assurance
that the arrangement would prospectively apply in the event that rehabilitation is granted. As case law intimates, nothing short of legally
binding investment commitment/s from third parties is required to qualify as a material financial commitment. 52 However, no such binding
investment was presented in this case.

B. Lack of Liquidation Analysis.

SMMCI likewise failed to include any liquidation analysis in its Rehabilitation Plan. The Court observes that as of November 16, 2009, or
about 9 months prior to the filing of the petition for rehabilitation, the loan with BPI Family had already amounted to 52,784,589.34, with
interest at 10.25% p.a. or a daily interest of about 6,655.48 and late payment charge of 36% p.a.53 However, with no SMMCI financial
statement on record, it is unclear to the Court what assets it possesses in order to determine the values to be derived if liquidation has to
be had thereby. Accordingly, this prevents the Court from ascertaining if the petitioning debtor’s creditors can recover by way of
the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated, a crucial factor in a corporate rehabilitation case. Again, the financial records of St. Michael Hospital, being a separate and
distinct entity whose merger with SMMCI only exists in the realm of probability, cannot be taken as a substitute to fulfill the requirement.
What remains pertinent are the financial statements of SMMCI for it solely stands as the debtor to be rehabilitated, or liquidated in this
case.

At any rate, records disclose that St. Michael Hospital’s current cash operating position 54 is just enough to meet its own maturing
obligations.55 While it has substantial total assets, a large portion thereof is comprised of fixed assets, while its current assets 56 consist
mostly of inventory.57 Still, the total liquidation assets and the estimated liquidation return to the creditors, as well as the fair market value
vis-à-vis the forced liquidation value of the fixed assets that would guide the Court in assessing the feasibility of the Rehabilitation Plan
were not shown.

C. Effect of Non-Compliance.

The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as well as to include a liquidation
analysis, translates to the conclusion that the RTC’s stated considerations for approval, i.e., that (a) the plan provides for recovery rates
on operating mode as opposed to liquidation values; (b) it contains details for a business plan which will restore profitability and solvency
on petitioner; (c) the projected cash flow can support the continuous operation of the debtor as a going concern; and (d) the plan has
provisions to ensure that future income will inure to the benefit of the creditors, 58 are actually unsubstantiated, and hence, insufficient to
decree SMMCI’s rehabilitation. It is well to emphasize that the remedy of rehabilitation should be denied to corporations that do not qualify
under the Rules. Neither should it be allowed to corporations whose sole purpose is to delay the enforcement of any of the rights of the
creditors, which is rendered obvious by: (a) the absence of a sound and workable business plan; (b) baseless and unexplained
assumptions, targets, and goals; and (c) speculative capital infusion or complete lack thereof for the execution of the business
plan.59 Unfortunately, these negative indicators have all surfaced to the fore, much to SMMCI’s chagrin.

IV.

While the Court recognizes the financial predicaments of upstart corporations under the prevailing economic climate, it must nonetheless
remain forthright in limiting the remedy of rehabilitation only to meritorious cases. As above-mentioned, the purpose of rehabilitation
proceedings is not only to enable the company to gain a new lease on life but also to allow creditors to be paid their claims from its
earnings, when so rehabilitated. Hence, the remedy must be accorded only after a judicious regard of all stakeholders’ interests; it is not
a one-sided tool that may be graciously invoked to escape every position of distress.

In this case, not only has the petitioning debtor failed to show that it has formally began its operations which would warrant restoration,
but also it has failed to show compliance with the key requirements under the Rules, the purpose of which are vital in determining the
propriety of rehabilitation. Thus, for all the reasons hereinabove explained, the Court is constrained to rule in favor of BPI Family and
hereby dismiss SMMCI’s Rehabilitation Petition. With this pronouncement, it is now unnecessary to delve on the other ancillary issues
raised herein.

WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2012 and the Resolution dated January 18, 2013 of the Court
of Appeals in CA-G.R. SP No. 121004 upholding the Order dated August 4, 2011 of the Regional Trial Court of Imus, Cavite, Branch 21
approving the Rehabilitation Plan of respondent St. Michael Medical Center, Inc. (SMMCI) are hereby REVERSED and SET ASIDE.
Accordingly, SMMCI’s Petition for Corporate Rehabilitation is DISMISSED.

SO ORDERED.
G.R. No. 187581 October 20, 2014

(3) PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,

vs.
BASIC POLYPRINTERS AND PACKAGING CORPORATION, Respondent.

This appeal is taken from the decision promulgated on December 16, 2008 in C.A.-G.R. CV No. I 02484 entitled Philippine Bank of
Communications, v. Basic Polyprinters and Packaging Corporation, 1 whereby the Court of Appeals (CA) affirmed the order issued on
January 11, 2008 by the Regional Trial Court (RTC), Branch 21, in Imus, Cavite, viz:

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Order dated January 11, 2008 of the Regional Trial Court
oflmus, Cavite, Branch 21, is hereby AFFIRMED.

SO ORDERED.2

Antecedents

Respondent Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a domestic corporation engaged in the business of
printing greeting cards, gift wrappers, gift bags, calendars, posters, labels and other novelty items. 3

On February 27, 2004, Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies (namely:
Cuisine Connection, Inc., Fine Arts International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong Corporation, Main
Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder Book Corporation), filed a joint petition for suspension of
paymentswith approval of the proposed rehabilitation in the RTC (docketed as SEC Case No. 031-04).4 The RTC issued a stay order,
and eventually approved the rehabilitation plan, but the CA reversed the RTC on October 25, 2005, 5 and directed the petitioning
corporations tofile their individual petitions for suspension of payments and rehabilitation in the appropriate courts.

Accordingly, Basic Polyprinters brought its individual petition,6 averring therein that: (a) its business since incorporation had been very
viable and financially profitable; (b) it had obtained loans from various banks, and had owed accounts payable to various creditors; (c)
the Asian currency crisis, devaluation of the Philippine peso, and the current state of affairs of the Philippine economy, coupled with: (i)
high interest rates, penalties and charges by its creditors; (ii) low demand for gift items and cards due to the economic recession and the
use of cellular phones; (iii) direct competition from stores like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002
that had destroyed its warehouse containing inventories worth ₱264,000,000.00, resulting in difficulty of meeting its obligations; (d) its
operations would be hampered and would render rehabilitation difficult should its creditors enforce their claims through legal actions,
including foreclosure proceedings; (e) included in its overall Rehabilitation Program was the full payment of its outstanding loans in favor
of petitioner Philippine Bank of Communications (PBCOM), RCBC, Land Bank, EPCI Bank and AUB via repayment over 15 years with
moratorium of two-years for the interestand five years for the principal at 5% interest per annumand a dacion en pagoof its affiliate
property in favor of EPCI Bank; and (f) its assets worth ₱15,374,654.00 with net liabilities amounting to ₱13,031,438.00. 7

Finding the petition sufficient in formand substance, the RTC issued the stay order dated August 31, 2006. 8 It appointed Manuel N. Cacho
III as the rehabilitation receiver, and required all creditors and interested parties, including the Securities and Exchange Commission
(SEC), to file their comments.

After the initial hearing and evaluation of the comments and opposition of the creditors, including PBCOM, the RTC gave due course to
the petition and referred it to the rehabilitation receiver for evaluation and recommendation. 9

On October 18, 2007, the rehabilitation receiver submitted his report recommending the approval of the rehabilitation plan. On December
19, 2007, the rehabilitation receiver submitted his clarifications and corrections to his report and recommendations.10

Ruling of the RTC

On January 11, 2008, the RTC issued an order approving the rehabilitation plan, 11 the pertinent portion of which reads:

Petitioner’s primary business is in the printing business. Based on its updated financial report, the financial condition has greatly improved.

However, because of the indebtedness and the slowdown in sales brought about by a depressed economy, the present income from the
operations will be insufficient to pay off its maturing obligations. Thus, the success of the rehabilitation planlargely depends on its ability
to reduce its debt obligation to a manageable level by the suspension of payments of obligations and the proposed "dacion en pago."

The projected cash flow attached to the report and the repayment program demonstrates the ability of the company to settle its debt
liability.

Other factors which justify the approval of the Rehabilitation Plan are as follows:
 1. The petitioner has a positive net worth and inventory that can be converted into resources.

2. The Plan ensures preservation of assets, optimizes recovery of creditors’ claims and provides ofan orderly payment of debts.

3. The plan will restore petitioner to profitability and solvency and maintain it as an on-going concern to the benefit of the
stockholders, investors and creditors.

4. The rehabilitation and the continuous operation of the company will generate employment.

5. The plan is endorsed by the Rehabilitation Receiver.

CONSIDERING THE FOREGOING, the Court hereby approves the detailed Rehabilitation Plan including the Receiver’s Report and
Recommendations and its clarifications and corrections and enjoins the petitioner to comply strictly with the provisions of the plan, perform
its obligations thereunder and take all actions necessary to carry out the plan, failing which, the Court shall either, upon motion, motu
proprio or upon the recommendation of the Rehabilitation Receiver, terminate the proceedings pursuant to Section 27, Rule 1 of the
Interim Rules of Procedure on Corporate Rehabilitation.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a quarterly report on the progress
thereon.

SO ORDERED.

PBCOM appealed to the CA in due course.

Ruling of the CA

In the assailed decision promulgated on December 16, 2008, 12 the CA affirmed the questioned order of the RTC, agreeing with the finding
of the rehabilitation receiver that there were sufficient evidence, factors and actual opportunities in the rehabilitation plan indicating that
Basic Polyprinters could be successfully rehabilitated in due time. 13

Emphasizing the equitable and rehabilitative purposes of rehabilitation proceedings, the CA stated that Presidential Decree No. 902-A,
as amended, sought to "effect a feasible and viable rehabilitation by preserving a foundering business as going concern" because it would
be more valuable to preserve the assets of the corporation14 rather than to pursue its liquidation; and observed in closing:

One last word. The purpose of rehabilitation proceedings is to enable the company to gain new lease on life and thereby allows creditors
to be paid their claims from its earnings. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore
and reinstate the financially distressed corporation to its former position of successful operation and solvency. This is in consonance with
the State’s objective to promote a wider and moremeaningful equitable distribution of wealth to protect investments and the public. The
approval of the Rehabilitation Plan by the trial court is precisely in furtherance of the rationale behind the Interim Rules of Corporate
Rehabilitation is to effect a feasible and viable rehabilitation ofailing corporations which affect the public welfare. 15

PBCOM moved for reconsideration,16 but its motion was denied.

Issues

Hence, this appeal by PBCOM upon the following issues, namely:

THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING PETITIONER’S PETITION FOR REVIEW AND AFFIRMING THE
ORDER DATED JANUARY 11, 2008, CONSIDERING THAT:

A PETITION FILED PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE REHABILITATION PRESUPPOSES
THAT THE PETITIONING CORPORATION HAS SUFFICIENT PROPERTY TO COVER ALL ITS INDEBTEDNESS. RESPONDENT IS
INSOLVENT AS ITS ASSETS ARE LESS THAN ITS OBLIGATIONS;

THE "DETAILED REHABILITATION PLAN" DOES NOT PROVIDE MATERIAL FINANCIAL COMMITMENTS FROM RESPONDENT
ITSELF OR WOULD-BE INVESTORS
C

THE TERMS AND CONDITIONS OF THE "APPROVED REHABILITATION PLAN" ARE TOO ONEROUS PARTICULARLY THE
REHABILITATION TERM OF FIFTEEN (15) YEARS AS WELL AS THE "WAIVER" OF ALL INTEREST AND PENALTIES BEGINNING
FEBRUARY 2004 UPTO THE TIME OF ITS APPROVAL.17

The petitioner claims that the CA did not pass upon the issues presented in its petition, particularly Basic Polyprinters’ liquidity that was
material in proceedings for corporate rehabilitation; that a petition for rehabilitation presupposed that the petitioning corporation had
sufficient property to cover all its indebtedness, but Basic Polyprinters did not show so because its assets were much less thanits
outstanding obligations; that Basic Polyprinters had under-declared its outstanding loans, i.e., its total loan obligations with the petitioner
was at ₱118,411,702.70 as of June 30, 2006, and not just ₱71,315,086.00 as it claimed; that the independent appraisal by the
Professional Asset Valuers, Inc. (PAVI) on Basic Polyprinters’ machineries and printing equipment mortgaged to it (PBCOM) had a fair
market value of only ₱6,531,000.00, and a prompt sale value of only ₱4,572,000.00, as compared to the fair market value of
₱15,110,000.00 declared by Basic Polyprinters; that the rehabilitation plandid not contain the material financial commitments required by
Section 5, Rule 4 of the Interim Rules of Procedure for Corporate Rehabilitation (Interim Rules); that, accordingly, the proposed repayment
scheme did not constitute a material financial commitment, and the proposed dacion en pagowas not proper because the property subject
thereof had been mortgaged in its favor; and that the absence of capital infusion rendered impossible the proposal to invest in new
machineries that would increase sales and improve quality and capacity. 18

The petitioner posits that the assailed decision of the CA effectively gave Basic Polyprinters a moratoriumfor seven years on both interest
and principal payments counted from the issuance of the stay order in 2004 that effectively prejudiced its creditors.19

Basic Polyprinters refutes the petitioner, saying that the petitioner raises factual issues improper under Rule 45 of the Rules of Court; that
as long as the rehabilitation court found that the petitioning corporation could still be rehabilitated, its findings of fact should be binding
when they were supported by substantial evidence; that the independent appraisal report by PAVI was unauthorized by the RTC; and
that the validity of the rehabilitation plan could be upheld for its complete satisfaction of the requirements of Section 5, Rule4 of the Interim
Rules.

In fine, we shall determine whether the approval of the rehabilitation plan was proper despite: (a) the alleged insolvency of Basic
Polyprinters; and (b) absence of a material financial commitment pursuant to Section 5, Rule 4 of the Interim Rules.

Ruling

We reverse the judgment of the CA.

Liquidity was not an issue in a petition for rehabilitation

The petitioner contends that the sole issue in corporate rehabilitation is one of liquidity; hence, the petitioning corporation should have
sufficient assets to cover all its indebtedness because it only foresees the impossibility of paying the indebtedness falling due. It claims
that rehabilitation became inappropriate because Basic Polyprinters was insolvent due to its assets being inadequate to cover the
outstanding obligations.20

We disagree with the contention of the petitioner.

Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments
projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated." 21 It contemplates a
continuance ofcorporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation
and solvency.22

In Asiatrust Development Bank v. First Aikka Development, Inc., 23 we said that rehabilitation proceedings have a two-pronged purpose,
namely: (a) to efficiently and equitably distribute the assets of the insolvent debtor to its creditors; and (b) to provide the debtor with a
fresh start, viz: Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one hand, they attempt
to provide for the efficient and equitable distribution ofan insolvent debtor's remaining assets to its creditors; and on the other, to provide
debtors with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs. The
purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paidtheir
claims from its earnings.24

Consequently, the basic issues inrehabilitation proceedings concern the viability and desirability of continuing the business operations of
the petitioning corporation. The determination of such issues was to be carried out by the court-appointed rehabilitation receiver,25 who
was Cacho in this case.
Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of 2010), a law that is applicable hereto, 26 has
defined a corporate debtor as a corporation duly organized and existing under Philippine laws that has become insolvent. 27 The term
insolventis defined in Republic Act No. 10142 as "the financial condition of a debtor that is generally unable to pay its or his liabilities as
they fall due in the ordinary course of business or has liabilities that are greater than its or his assets." 28

As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of BasicPolyprinters was incorrect.

II

A material financial commitment is significant in a rehabilitation plan

The petitioner next argues that Basic Polyprinters did not present any material financial commitment in the rehabilitation plan, thereby
violating Section 5, Rule 4 of the Interim Rules, the rule applicable at the time of the filing of the petition for rehabilitation. In that regard,
Basic Polyprinters made no commitment in relation to the infusion of fresh capital by its stakeholders, 29 and presented only a "lopsided"
protracted repayment schedule that included the dacion en pago involving an asset mortgaged to the petitioner itself in favor of another
creditor.

A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith ofthe distressed
corporation in financing the proposed rehabilitation plan. 30 This commitment may include the voluntary undertakings ofthe stockholders
or the would-be investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the period of rehabilitation. 31

Basic Polyprinters presented financial commitments, as follows:

(a) Additional ₱10 million working capital to be sourced from the insurance claim;

(b) Conversion of the directors’ and shareholders’ deposit for future subscription to common stock;32

(c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the company’s equity; and

(d) All liabilities (cash advances made by the stockholders) of the company from the officers and stockholders shall be treated
as trade payables.33

However, these financial commitments were insufficient for the purpose.1âwphi1 We explain.

The commitment to add ₱10,000,000.00 working capital appeared to be doubtful considering that the insurance claim from which said
working capital would be sourced had already been written-off by Basic Polyprinters’s affiliate, Wonder Book Corporation. 34 A claim that
has been written-off is considered a bad debt or a worthless asset,35 and cannot be deemed a material financial commitment for purposes
of rehabilitation. At any rate, the proposed additional ₱10,000,000.00 working capital was insufficient to cover at least half ofthe
shareholders’ deficit that amounted to ₱23,316,044.00 as of June 30, 2006.

We also declared in Wonder Book Corporation v. Philippine Bank of Communications (Wonder Book) 36 that the conversion of all deposits
for future subscriptions to common stock and the treatment of all payables to officers and stockholders as trade payables was hardly
constituting material financial commitments. Such "conversion" of cash advances to trade payables was, in fact, a mere re-classification
of the liability entry and had no effect on the shareholders’ deficit. On the other hand, we cannot determine the effect of the "conversion"of
the directors’ and shareholders’ deposits for future subscription to common stock and substituted liabilities on the shareholders’ deficit
because their amounts were not reflected in the financial statements contained in the rollo.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to address the low demands for their
products and the effect of direct competition from stores like SM, Gaisano, Robinsons, and other malls. Even the ₱245 million insurance
claim that was supposed to cover the destroyed inventories worth ₱264 million appears to have been written-off with no probability of
being realized later on.

We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en pagoto create a source of "fresh capital" was not feasible
because the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a
corporation also undergoing rehabilitation. Moreover, the negotiations (for the return of books and magazines from Basic Polyprinters’s
trade creditors) did not partake of a voluntary undertaking because no actual financial commitments had been made thereon.

Worthy of note here is that Wonder Book Corporation was a sister company of Basic Polyprinters, being one of the corporations that had
filed the joint petition for suspension of payments and rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of them submitted
identical commitments in their respective rehabilitation plans. As a result, as the Court observed in Wonder Book,37 the commitments by
Basic Polyprinters could not be considered as firm assurances that could convince creditors, future investors and the general public of its
financial and operational viability.
Due to the rehabilitation plan being an indispensable requirement in corporate rehabilitation proceedings, 38 Basic Polyprinters was
expected to exert a conscious effort in formulating the same, for such plan would spell the future not only for itself but also for its creditors
and the public in general. The contents and execution of the rehabilitation plan could not be taken lightly. We are not oblivious to the
plight of corporate debtors like Basic Polyprinters that have inevitably fallen prey to economic recession and unfortunate incidents in the
course of their operations. However, we must endeavor to balance the interests of all the parties that had a stake in the success of
rehabilitating the debtors. In doing so here, we cannot now find the rehabilitation plan for Basic Polyprinters to be genuine and in good
faith, for it was, in fact, unilateral and detrimental to its creditors and the public.

ACCORDINGLY, the Court GRANTS the petition for review on certiorari; SETS ASIDE and REVERSES the decision promulgated on
December 16, 2008 and the resolution promulgated on April 22, 2009, both by the Court of Appeals, as well as the order issued on
January 11, 2008 by the Regional Trial Court approving the rehabilitation plan submitted by Basic Polyprinters and Packaging
Corporation; DISMISSES the petition for suspension of payments and rehabilitation of Basic Polyprinters and Packaging Corporation;
and DIRECTS Basic Polyprinters and Packaging Corporation to pay the costs of suit.

SO ORDERED.

G.R. No. 177382

VIVA SHIPPING LINES, INC., Petitioner,

vs.
KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL PETROLEUM
CORPORATION, CITY OF BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO
HERNANDEZ, EUGENIO BACULO, and HARLAN BACALTOS,Respondents.

DECISION

LEONEN, J.:

Rule 43 of the Rules of Court prescribes the procedure to assail the final orders and decisions in corporate rehabilitation cases filed under
the Interim Rules of Procedure on Corporate Rehabilitation. 1 Liberality in the application of the rules is not an end in itself. It must be
pleaded with factual basis and must be allowed for equitable ends. There must be no indication that the violation of the rule is due to
negligence or design. Liberality is an extreme exception, justifiable only when equity exists.

On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for Corporate Rehabilitation before the Regional Trial
Court of Lucena City.2 The Regional Trial Court initially denied the Petition for failure to comply with the requirements in Rule 4, Sections
2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation. 3 On October 17, 2005, Viva Shipping Lines filed an Amended
Petition.4

In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime vessels 5 and Ocean Palace Mall, a shopping mall
in downtown Lucena City.6 Viva Shipping Lines also declared its total properties’ assessed value at about ₱45,172,790.00.7 However,
these allegations were contrary to the attached documents in the Amended Petition.

One of the attachments, the Property Inventory List, showed that Viva Shipping Lines owned only two (2) maritime vessels: M/V Viva
Peñafrancia V and M/V Marian Queen.8 The list also stated that the fair market value of all of Viva Shipping Lines’ assets amounted to
₱447,860,000.00,9 ₱400 million more than what was alleged in its Amended Petition. Some of the properties listed in the Property
Inventory List were already marked as "encumbered" by its creditors; 10 hence, only ₱147,630,000.00 of real property and its vessels were
marked as "free assets."11

Viva Shipping Lines also declared the following debts:

Amount of
Name of Creditor Nature of Debts
Obligation

Loan secured by Real Estate

(1) Metropolitan Bank & Trust Company Mortgage ₱176,428,745.50
(2) Keppel Philippines Marine, Inc. Charges for Repair of Vessels 9,000,000.00+
(3) Province of Quezon, Lucena City, and Province of Realty Taxes and
Batangas, Batangas City Assessments 35,000,000.00+
TOTAL12 ₱220,428,745.50+
According to Viva Shipping Lines, the devaluation of the Philippine peso, increased competition, and mismanagement of its businesses
made it difficult to pay its debts as they became due. 13 It also stated that "almost all [its] vessels were rendered unserviceable either
because of age and deterioration that [it] can no longer compete with modern made vessels owned by other operators." 14

In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of funding such as the sale of old vessels and
commercial lots of its sister company, Sto. Domingo Shipping Lines. 15 It also proposed the conversion of the Ocean Palace Mall into a
hotel, the acquisition of two (2) new vessels for shipping operations, and the "re-operation"16 of an oil mill in Buenavista, Quezon.17

Viva Shipping Lines nominated two individuals to be appointed as rehabilitation receiver: Armando F. Ragudo, a businessman from
Tayabas, Quezon, and Atty. Calixto Ferdinand B. Dauz III, a lawyer from Lucena City. 18 A day after filing the Amended Petition, Viva
Shipping Lines submitted the name of a third nominee, Former Judge Jose F. Mendoza (Judge Mendoza). 19

On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines’ Amended Petition to be "sufficient in form and substance,"
and issued a stay order.20 It stayed the enforcement of all monetary and judicial claims against Viva Shipping Lines, and prohibited Viva
Shipping Lines from selling, encumbering, transferring, or disposing of any of its properties except in the ordinary course of
business.21 The Regional Trial Court also appointed Judge Mendoza as rehabilitation receiver.

Before the initial hearing scheduled on December 5, 2005, the City of Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank
and Trust Company (Metrobank) filed their respective comments and oppositions to Viva Shipping Lines’ Amended Petition. 22

During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to write its opposition to Viva
Shipping Lines’ Amended Petition.23 Pilipinas Shell later filed its Comment/Opposition with Formal Notice of Claim. 24

Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed a Manifestation and Registration of Monetary Claim stating
that Viva Shipping Lines owes her ₱232,000.00 as separation and 13th month pay. 25 The Securities and Exchange Commission filed a
Comment informing the Regional Trial Court that Viva Shipping Lines violated certain laws and rules of the Commission. 26

On March 24, 2006, Judge Mendoza withdrew his acceptance of appointment as rehabilitation receiver. 27 As replacement, Viva Shipping
Lines nominated Atty. Antonio Acyatan, while Metrobank nominated Atty. Rosario S. Bernaldo. 28 Keppel Philippines Marine,
Inc.1âwphi1 adopted Metrobank’s nomination.29

On April 4, 2006, Metrobank filed a Motion for Production or Inspection of relevant documents relating to Viva Shipping Lines’ business
operations such as board resolutions, tax returns, accounting ledgers, bank accounts, and contracts. 30 Viva Shipping Lines filed its
opposition. However, the Regional Trial Court granted Metrobank’s Motion. 31 Viva Shipping Lines failed to comply with the Order to
produce the documents,32 as well as with the Regional Trial Court Order to submit a memorandum. 33

On September 27, 2006, Viva Shipping Lines’ former employees Alejandro Olit, Nida Montilla, Pio Hernandez, Eugenio Baculo, and
Harlan Bacaltos34 (Alejandro Olit, et al.) filed their comment on the Amended Petition, informing the Regional Trial Court of their pending
complaint against Viva Shipping Lines before the National Labor Relations Commission. 35

In the Order dated October 30, 2006,36 the Regional Trial Court lifted the stay order and dismissed Viva Shipping Lines’ Amended
Petition for failure to show the company’s viability and the feasibility of rehabilitation. The Regional Trial Court summarized Viva Shipping
Lines’ creditors and debts:37

Name of Creditor Nature of Debts38 Amount of Obligation

1 Batangas City Real Estate Taxes ₱264,006.52

2 Keppel Philippines Marine, Inc. Charges for Repair of Vessels 20,054,977.84
3 Metropolitan Bank & Trust Company Loan secured by Real Estate Mortgage 191,963,465.79
4 Pilipinas Shell Petroleum Corp. Supply Agreement 20,546,797.74
5 Luzviminda C. Cueto Labor 232,000.00
TOTAL ₱233,061,247.89

The Regional Trial Court also noted the following as Viva Shipping Lines’ free assets:39

Assessed
Nature of Property Market Value
Value

1. Agricultural/Industrial Lot in San Narciso, Quezon covered by TCT No.

T-155423 ₱ 16,493,050.00 ₱ 40,000,000.00
 2. Agricultural Lot located at San Andres, Quezon covered by TCT No. T-
215549 1,235,010.00 47,630,000.00
3. MV Viva Peñafrancia 5 30,000,000.00
4. MV Marian Queen40 30,000,000.00
₱
TOTAL 147,630,000.00

The Regional Trial Court found that Viva Shipping Lines’ assets all appeared to be non-performing. Further, it noted that Viva Shipping
Lines failed to show any evidence of consent to sell real properties belonging to its sister company. 41

Aggrieved, Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals. 42 It only
impleaded Hon. Adolfo V. Encomienda, the Presiding Judge of the trial court that rendered the assailed decision. It did not implead any
of its creditors, but served copies of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of
Batangas, Province of Quezon, and City of Lucena.43 Viva Shipping Lines neither impleaded nor served a copy of the Petition on its
former employees or their counsels.

The Court of Appeals dismissed Viva Shipping Lines’ Petition for Review in the Resolution dated January 5, 2007. 44It found that Viva
Shipping Lines failed to comply with procedural requirements under Rule 43.45 The Court of Appeals ruled that due to the failure of Viva
Shipping Lines to implead its creditors as respondents, "there are no respondents who may be required to file a comment on the petition,
pursuant to Section 8 of Rule 43."46

Viva Shipping Lines moved for reconsideration.47 It argued that its procedural misstep was cured when it served copies of the Petition on
the Regional Trial Court and on its former employees. 48 In the Resolution dated March 30, 2007, the Court of Appeals denied Viva
Shipping Lines’ Motion for Reconsideration.49

Viva Shipping Lines filed before this court a Petition for Review on Certiorari assailing the January 5, 2007 and March 30, 2007 Court of
Appeals Resolutions.50 It prayed that the case be remanded to the Court of Appeals for adjudication on the merits. 51

Without necessarily giving due course to the Petition, this court required respondents to comment. 52 Keppel Philippines Marine,
Inc.,53 Pilipinas Shell,54 Metrobank,55 former employees Alejandro Olit et al.,56 the City of Batangas,57 the City Treasurer of Lucena,58 and
the Provincial Treasurer of Quezon59 filed their respective Comments.

On September 17, 2008,60 December 10, 2008,61 and July 20, 2009,62 this court required Viva Shipping Lines to file replies to
respondents’ comments. Viva Shipping Lines’ counsel, Abesamis Law Office, withdrew its representation, which was accepted by this
court.63 Viva Shipping Lines was unable to file its consolidated reply; hence, this court resolved that Viva Shipping Lines’ right to file a
consolidated reply was deemed waived.64

On September 1, 2011, Atty. Vicente M. Joyas (Atty. Joyas) entered his appearance as Viva Shipping Lines’ new counsel. 65 Atty. Joyas
moved for several extensions of time to comply with this court’s order to file a consolidated reply. This court allowed Atty. Joyas’ Motions,
and Viva Shipping Lines’ consolidated reply was noted in our Resolution dated December 7, 2011. 66 This court then ordered the parties
to submit their respective memoranda.67

Viva Shipping Lines, Inc.68 and respondents Pilipinas Shell,69 Keppel Philippines Marine, Inc.,70 and Metrobank71submitted their
respective memoranda. This court dispensed with the filing of the other respondents’ memoranda. 72

We resolve the following issues:

First, whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines’ Petition for Review on procedural grounds; and

Second, whether petitioner was denied substantial justice when the Court of Appeals did not give due course to its petition.

Petitioner argues that the Court of Appeals should have given due course to its Petition and excused its non-compliance with procedural
rules.73 For petitioner, the Interim Rules of Procedure on Corporate Rehabilitation mandates a liberal construction of procedural rules,
which must prevail over the strict application of Rule 43 of the Rules of Court. 74

According to petitioner, this court disfavors dismissals based on pure technicalities and adopts a policy stating that rules on appeal are
"not iron-clad and must yield to loftier demands of substantial [j]ustice and equity." 75 For petitioner, the immediate dismissal of its Petition
for Review is contrary to the purpose of corporate rehabilitation to rescue and rehabilitate financially distressed companies.76

Respondents, on the other hand, argue that the dismissal of petitioner’s Petition for Review was proper for its failure to implead any of its
creditors. Petitioner’s procedural misstep resulted in the denial of the creditors’ right to due process as they could not file a comment on
the Petition.77 Respondent Pilipinas Shell points out that petitioner did not even try to explain why it failed to implead its creditors in its
Petition.78

Respondents cite Rule 43, Section 7, which states that non-compliance with any of the requirements of proof of service of the Petition,
and the required contents, shall be sufficient ground for the dismissal of the Petition. 79Compliance with Rule 43 is required under the
Interim Rules of Procedure on Corporate Rehabilitation because it is the prescribed mode of appealing trial court decisions and final
orders in corporate rehabilitation cases.80 According to respondent Metrobank, contrary to the views of petitioner, the policy of liberality
in construction of the Interim Rules of Procedure on Corporate Rehabilitation are limited to proceedings in the Regional Trial Court, and
not with respect to procedural rules in elevating appeals relating to corporate rehabilitation. 81

Respondents note that because petitioner repeatedly defied procedural rules, it therefore was no longer entitled to the relaxation of these
rules.82 Respondent Pilipinas Shell also points out the defects in the verification, certification of non-forum shopping, and attachments of
petitioner in its Petition before this court.83

Respondent City of Batangas emphasizes that the Rules of Court are promulgated to facilitate the adjudication of cases. It argues that
petitioner should not be afforded equitable considerations as it acted in bad faith by concealing material information during the
rehabilitation proceedings.84

Respondents further argue that even if the Court of Appeals gave due course to the Petition, it would still have dismissed the case on the
merits. Respondents cite petitioner’s failure to provide material facts with sufficient particularity in its Amended Petition for Corporate
Rehabilitation.85 Petitioner also failed to disclose some of its creditors, as well as the several pending cases relating to its financial
liabilities.86 It failed to describe with specificity the cause of its inability to pay its debts. 87 It also failed to clarify which vessels were still
under its ownership, and which vessels had maritime liens. 88 Petitioner merely estimated its liabilities against its creditors. 89 Respondents
also allege that petitioner nominated rehabilitators who are professionally connected with its counsel despite the existence of conflict of
interest.90

Respondents point out that petitioner’s admission that almost all its vessels are rendered unserviceable suggests that rehabilitation is no
longer viable.91 Former employees also mention that despite petitioner’s desire to rehabilitate, after the Regional Trial Court’s final order,
petitioner began disposing of some of its assets.92Respondents also cannot rely on the plan to sell some of petitioner’s sister company’s
properties. They also express doubts regarding petitioner’s plan of converting its mall to a hotel/restaurant because it had no such
experience. Respondents thus characterize Viva Shipping Lines’ rehabilitation plan as "unrealistic, untested, and improbable."93

We deny the Petition.

Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who [foresee] the impossibility of meeting [their]
debts when they respectively fall due."94 A corporation under rehabilitation continues with its corporate life and activities to achieve
solvency,95 or a position where the corporation is able to pay its obligations as they fall due in the ordinary course of business. Solvency
is a state where the businesses’ liabilities are less than its assets. 96

Corporate rehabilitation is a type of proceeding available to a business that is insolvent. In general, insolvency proceedings provide for
predictability that commercial obligations will be met despite business downturns. Stability in the economy results when there is assurance
to the investing public that obligations will be reasonably paid. It is considered state policy

to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing
claims and property rights[.] . . . [R]ehabilitation or liquidation shall be made with a view to ensure or maintain certainty and predictability
in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of
claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of
the State to facilitate a speedy and orderly liquidation of these debtors’ assets and the settlement of their obligations. 97 (Emphasis
supplied)

The rationale in corporate rehabilitation is to resuscitate businesses in financial distress because "assets . . . are often more valuable
when so maintained than they would be when liquidated." 98 Rehabilitation assumes that assets are still serviceable to meet the purposes
of the business. The corporation receives assistance from the court and a disinterested rehabilitation receiver to balance the interest to
recover and continue ordinary business, all the while attending to the interest of its creditors to be paid equitably. These interests are also
referred to as the rehabilitative and the equitable purposes of corporate rehabilitation.99

The nature of corporate rehabilitation was thoroughly discussed in Pryce Corporation v. China Banking Corporation:100

Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave the
various creditors unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their concerns.
Corporate rehabilitation allows a court-supervised process to rejuvenate a corporation. . . . It provides a corporation’s owners a sound
chance to re-engage the market, hopefully with more vigor and enlightened services, having learned from a painful experience.
Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to
the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporation’s limited resources.

....

Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come in and apply the process
for corporate rehabilitation.101

Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation 102 reiterates that courts "must endeavor to balance
the interests of all the parties that had a stake in the success of rehabilitating the debtors." 103These parties include the corporation seeking
rehabilitation, its creditors, and the public in general. 104

The public’s interest lies in the court’s ability to effectively ensure that the obligations of the debtor, who has experienced severe economic
difficulties, are fairly and equitably served. The alternative might be a chaotic rush by all creditors to file separate cases with the possibility
of different trial courts issuing various writs competing for the same assets. Rehabilitation is a means to temper the effect of a business
downturn experienced for whatever reason. In the process, it gives entrepreneurs a second chance. Not only is it a humane and equitable
relief, it encourages efficiency and maximizes welfare in the economy.

Clearly then, there are instances when corporate rehabilitation can no longer be achieved. When rehabilitation will not result in a better
present value recovery for the creditors,105 the more appropriate remedy is liquidation.106

It does not make sense to hold, suspend, or continue to devalue outstanding credits of a business that has no chance of recovery. In
such cases, the optimum economic welfare will be achieved if the corporation is allowed to wind up its affairs in an orderly manner.
Liquidation allows the corporation to wind up its affairs and equitably distribute its assets among its creditors. 107

Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same time.108 In rehabilitation, corporations have
to maintain their assets to continue business operations. In liquidation, on the other hand, corporations preserve their assets in order to
sell them. Without these assets, business operations are effectively discontinued. The proceeds of the sale are distributed equitably
among creditors, and surplus is divided or losses are re-allocated.109

Proceedings in case of insolvency are not limited to rehabilitation. Our laws have evolved to provide for different procedures where a
debtor can undergo judicially supervised reorganization or liquidation of its assets. 110

Corporate rehabilitation traces its roots to Act No. 1956, otherwise known as the Insolvency Law of 1909. Under the Insolvency Law, a
debtor in possession of sufficient properties to cover all its debts but foresees the impossibility of meeting them when they fall due may
file a petition before the court to be declared in a state of suspension of payments.111 This allows time for the debtor to organize its affairs
in order to achieve a state where it can comply with its obligations.

The relief was also provided in the amendatory provisions of Presidential Decree No. 902-A. Section 5 of Presidential Decree No. 902-A
states that the Securities and Exchange Commission has jurisdiction to decide:

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities,
but is under the management of a Rehabilitation Receiver or Management Committee created pursuant to this Decree. 112 (Emphasis
supplied).

In 2000, the jurisdiction of the Securities and Exchange Commission over these cases was transferred to the Regional Trial Court,113 by
operation of Section 5.2 of the Securities Regulation Code. 114 In the same year, this court approved the Interim Rules of Procedure on
Corporate Rehabilitation. The Interim Rules of Procedure on Corporate Rehabilitation provides a summary and non-adversarial
proceeding to expedite the resolution of cases for the benefit of the corporation in need of rehabilitation, its creditors, and the public in
general.115

Currently, the prevailing law and procedure for corporate rehabilitation is the Financial Rehabilitation and Insolvency Act of 2010
(FRIA).116 FRIA provides procedures for the different types of rehabilitation and liquidation proceedings. The Financial Rehabilitation
Rules of Procedure was issued by this court on August 27, 2013. 117

However, since the Regional Trial Court acted on petitioner’s Amended Petition before FRIA was enacted, Presidential Decree No. 902-
A and the Interim Rules of Procedure on Corporate Rehabilitation were applied to this case. 118

II
The controversy in this case arose from petitioner’s failure to comply with appellate procedural rules in corporate rehabilit ation cases.
Petitioner now pleads this court to apply the policy of liberality in constructing the rules of procedure. 119

We observe that during the corporate rehabilitation proceedings, the Regional Trial Court already exercised the liberality contemplated
by the Interim Rules of Procedure on Corporate Rehabilitation. The Regional Trial Court initially dismissed Viva Shipping Lines’ Petition
but allowed the filing of an amended petition. Later on, the same court issued a stay order when there were sufficient grounds to believe
that the Amended Petition complied with Rule 4, Section 2 of the Interim Rules of Procedure on Corporate Rehabilitation. Petitioner was
not penalized for its non-compliance with the court’s order to produce relevant documents or for its non-submission of a memorandum.120

Even with these accommodations, the trial court still found basis to dismiss the plea for rehabilitation.

Any final order or decision of the Regional Trial Court may be subject of an appeal. 121 In Re: Mode of Appeal in Cases Formerly
Cognizable by the Securities and Exchange Commission, 122 this court clarified that all decisions and final orders falling under the Interim
Rules of Procedure on Corporate Rehabilitation shall be appealable to the Court of Appeals through a petition for review under Rule 43
of the Rules of Court.123

New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City 124 clarifies that an appeal from a final order or decision in
corporate rehabilitation proceedings may be dismissed for being filed under the wrong mode of appeal. 125

New Frontier Sugar doctrinally requires compliance with the procedural rules for appealing corporate rehabilitation decisions. It is true
that Rule 1, Section 6 of the Rules of Court provides that the "[r]ules shall be liberally construed in order to promote their objective of
securing a just, speedy and inexpensive disposition of every action and proceeding." However, this provision does not negate the entire
Rules of Court by providing a license to disregard all the other provisions. Resort to liberal construction must be rational and well-
grounded, and its factual bases must be so clear such that they outweigh the intent or purpose of an apparent reading of the rules.

Rule 43 prescribes the mode of appeal for corporate rehabilitation cases:

Sec. 5. How appeal taken. – Appeal shall be taken by filing a verified petition for review in seven (7) legible copies with the Court of
Appeals, with proof of service of a copy thereof on the adverse party and on the court or agency a quo. The original copy of the petition
intended for the Court of Appeals shall be indicated as such by the petitioner.

....

Sec. 6. Contents of the petition. – The petition for review shall (a) state the full names of the parties to the case, without impleading the
court or agencies either as petitioners or respondents; (b) contain a concise statement of the facts and issues involved and the grounds
relied upon for the review; (c) be accompanied by a clearly legible duplicate original or a certified true copy of the award, judgment, final
order or resolution appealed from, together with certified true copies of such material portions of the record referred to therein and other
supporting papers; and (d) contain a sworn certification against forum shopping as provided in the last paragraph of section 2, Rule 42.
The petition shall state the specific material dates showing that it was filed within the period fixed herein. (Emphasis supplied)

Petitioner did not comply with some of these requirements. First, it did not implead its creditors as respondents. Instead, petitioner only
impleaded the Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a copy of the
Petition on some of its creditors, specifically, its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial
Court.

Petitioner justified its failure to furnish its former employees with copies of the Petition by stating that the former employees were late in
filing their opposition before the trial court. 126 It also stated that its failure to furnish the Regional Trial Court with a copy of the Petition
was unintentional.127

The Court of Appeals correctly dismissed petitioner’s Rule 43 Petition as a consequence of non-compliance with procedural rules. Rule
43, Section 7 of the Rules of Court states:

Sec. 7. Effect of failure to comply with requirements. – The failure of the petitioner to comply with any of the foregoing requirements
regarding the payment of the docket and other lawful fees, the deposit of costs, proof of service of the petition, and the contents of and
the documents which should accompany the petition shall be sufficient ground for the dismissal thereof.

Petitioner admitted its failure to comply with the rules. It begs the indulgence of the court to give due course to its Petition based on their
belated compliance with some of these procedural rules and the policy on the liberal construction of procedural rules.

There are two kinds of "liberality" with respect to the construction of provisions of law. The first requires ambiguity in the text of the
provision and usually pertains to a situation where there can be two or more viable meanings given the factual context presented by a
case. Liberality here means a presumption or predilection to interpret the text in favor of the cause of the party requesting for "liberality."
Then there is the "liberality" that actually means a request for the suspension of the operation of a provision of law, whether substantive
or procedural. This liberality requires equity. There may be some rights that are not recognized in law, and if courts refuse to recognize
these rights, an unfair situation may arise.128 Specifically, the case may be a situation that was not contemplated on or was not possible
at the time the legal norm was drafted or promulgated.

It is in the second sense that petitioner pleads this court.

III

Our courts are not only courts of law, but are also courts of equity. 129 Equity is justice outside legal provisions, and must be exercised in
the absence of law, not against it.130 In Reyes v. Lim:131 Equity jurisdiction aims to do complete justice in cases where a court of law is
unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. Equity
is the principle by which substantial justice may be attained in cases where the prescribed or customary forms of ordinary law are
inadequate.132 (Citation omitted)

Liberality lies within the bounded discretion of a court to allow an equitable result when the proven circumstances require it. Liberality
acknowledges a lacuna in the text of a provision of law. This may be because those who promulgated the rule may not have foreseen
the unique circumstances of a case at bar. Human foresight as laws and rules are prepared is powerful, but not perfect.

Liberality is not an end in itself. Otherwise, it becomes a backdoor disguising the arbitrariness or despotism of judges and justices. In North
Bulacan Corp. v. PBCom,133 the Regional Trial Court ignored several procedural rules violated by the petitioning corporation and allowed
rehabilitation in the guise of liberality. This court found that the Regional Trial Court grossly abused its authority when it allowed
rehabilitation despite the corporation’s blatant non-compliance with the rules.

The factual antecedents of a plea for the exercise of liberality must be clear. There must also be a showing that the factual basis for a
plea for liberality is not one that is due to the negligence or design of the party requesting the suspension of the rules. Likewise, the basis
for claiming an equitable result—for all the parties—must be clearly and sufficiently pleaded and argued. Courts exercise liberality in line
with their equity jurisdiction; hence, it may only be exercised if it will result in fairness and justice.

IV

The first rule breached by petitioner is the failure to implead all the indispensable parties. Petitioner did not even interpose reasons why
it should be excused from compliance with the rule to "state the full names of the parties to the case, without impleading the court . . . as
. . . respondents." Petitioner did exactly the opposite. It failed to state the full names of its creditors as respondents. Instead, it impleaded
the Presiding Judge of the originating court.

The Rules of Court requires petitioner to implead respondents as a matter of due process. Under the Constitution, "[n]o person shall be
deprived of life, liberty or property without due process of the law." 134 An appeal to a corporate rehabilitation case may deprive creditor-
stakeholders of property. Due process dictates that these creditors be impleaded to give them an opportunity to protect the property owed
to them.

Creditors are indispensable parties to a rehabilitation case, even if a rehabilitation case is non-adversarial. In Boston Equity Resources,
Inc. v. Court of Appeals:135

An indispensable party is one who has such an interest in the controversy or subject matter of a case that a final adjudication cannot be
made in his or her absence, without injuring or affecting that interest. He or she is a party who has not only an interest in the subject
matter of the controversy, but "an interest of such nature that a final decree cannot be made without affecting [that] interest or leaving the
controversy in such a condition that its final determination may be wholly inconsistent with equity and good conscience. It has also been
considered that an indispensable party is a person in whose absence there cannot be a determination between the parties already before
the court which is effective, complete or equitable." Further, an indispensable party is one who must be included in an action before it
may properly proceed.136

A corporate rehabilitation case cannot be decided without the creditors’ participation. The court’s role is to balance the interests of the
corporation, the creditors, and the general public. Impleading creditors as respondents on appeal will give them the opportunity to present
their legal arguments before the appellate court. The courts will not be able to balance these interests if the creditors are not parties to a
case. Ruling on petitioner’s appeal in the absence of its creditors will not result in judgment that is effective, complete, and equitable.

This court cannot exercise its equity jurisdiction and allow petitioner to circumvent the requirement to implead its creditors as respondents.
Tolerance of such failure will not only be unfair to the creditors, it is contrary to the goals of corporate rehabilitation, and will invalidate the
cardinal principle of due process of law.

The failure of petitioner to implead its creditors as respondents cannot be cured by serving copies of the Petition on its creditors. Since
the creditors were not impleaded as respondents, the copy of the Petition only serves to inform them that a petition has been filed before
the appellate court. Their participation was still significantly truncated. Petitioner’s failure to implead them deprived them of a fair hearing.
The appellate court only serves court orders and processes on parties formally named and identified by the petitioner. Since the creditors
were not named as respondents, they could not receive court orders prompting them to file remedies to protect their property rights.

The next procedural rule that petitioner pleaded to suspend is the rule requiring it to furnish all parties with copies of the Rule 43 Petition.
Petitioner admitted its failure to furnish its former employees with copies of the Petition because they belatedly filed their claims before
the Regional Trial Court.

This argument is specious at best; at worst, it foists a fraud on this court. The former employees were unable to raise their claims on time
because petitioner did not declare them as creditors. The Amended Petition did not contain any information regarding pending litigation
between petitioner and its former employees. The only way the former employees could become aware of the corporate rehabilitation
proceedings was either through the required publication or through news informally circulated among their colleagues. Clearly, it was
petitioner who caused the belated filing of its former employees’ claims when it failed to notify its employees of the corporate rehabilitation
proceedings. Petitioner’s failure was conveniently and disreputably hidden from this court.

Former employee Luzviminda C. Cueto filed her Manifestation and Registration of Monetary Claim as early as November 25, 2005.
Alejandro Olit, et al., the other employees, filed their Comment on September 27, 2006. By the time petitioner filed its Petition for Review
dated November 21, 2006 before the Court of Appeals, it was well aware that these individuals had expressed their interest in the
corporate rehabilitation proceedings. Petitioner and its counsel had no excuse to exclude these former employees as respondents on
appeal.

Petitioner’s belated compliance with the requirement to serve the Petition for Review on its former employees did not cure the procedural
lapse. There were two sets of employees with claims against petitioner: Luzviminda C. Cueto and Alejandro Olit, et al. When the Court
of Appeals dismissed petitioner’s appeal, petitioner only served a copy on Alejandro Olit, et al. Petitioner still did not serve a copy on
Luzviminda C. Cueto.

We do not see how it will be in the interest of justice to allow a petition that fails to inform some of its creditors that the final order of the
corporate rehabilitation proceeding was appealed. By not declaring its former employees as creditors in the Amended Petition for
Corporate Rehabilitation and by not notifying the same employees that an appeal had been filed, petitioner consistently denied the due
process rights of these employees.

This court cannot be a party to the inequitable way that petitioner’s employees were treated.

Petitioner also pleaded to be excused from the requirement under Rule 6, Section 5 of the Rules of Court to serve a copy of the Petition
on the originating court. According to petitioner, the annexes for the Petition for Review filed before the Court of Appeals arrived from
Lucena City on the last day of filing the petition. Petitioner’s representative from Lucena City and petitioner’s counsel rushed to compile
and reproduce all the documents, and in such rush, failed to send a copy to the Regional Trial Court. When petitioner realized that it failed
to furnish the originating court with a copy of the Petition, a copy was immediately sent by registered mail. 137

Again, petitioner’s excuse is unacceptable. Petitioner had 15 days to file a Rule 43 petition, which should include the proof of service to
the originating court. Rushing the compilation of the pleading with the annexes has nothing to do with being able to comply with the
requirement to submit a proof of service of the copy of the petition for review to the originating court. If at all, it further reflects the
unprofessional way that petitioner and its counsel treated our rules.

As this court has consistently ruled, "[t]he right to appeal is not a natural right[,] nor a part of due process; it is merely a statutory privilege,
and may be exercised only in the manner and in accordance with the provisions of the law." 138

In line with this, liberality in corporate rehabilitation procedure only generally refers to the trial court, not to the proceedings before the
appellate court. The Interim Rules of Procedure on Corporate Rehabilitation covers petitions for rehabilitation filed before the Regional
Trial Court. Thus, Rule 2, Section 2 of the Interim Rules of Procedure on Corporate Rehabilitation, which refers to liberal construction, is
limited to the Regional Trial Court. The liberality was given "to assist the parties in obtaining a just, expeditious, and inexpensive
disposition of the case."139

In Spouses Ortiz v. Court of Appeals,140 the petitioners made a procedural mistake with the attachments of the petition before the Court
of Appeals. The petitioners subsequently provided the correct attachments; however, this court still upheld the Court of Appeals’ dismissal:

The party who seeks to avail [itself] of [an appeal] must comply with the requirements of the rules. Failing to do so, the right to appeal is
lost. Rules of procedure are required to be followed, except only when for the most persuasive of reasons, they may be relaxed to relieve
a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.141

Petitioner’s excuses do not trigger the application of the policy of liberality in construing procedural rules. For the courts to exercise
liberality, petitioner must show that it is suffering from an injustice not commensurate to the thoughtlessness of its procedural mistakes.
Not only did petitioner exercise injustice towards its creditors, its Rule 43 Petition for Review did not show that the Regional Trial Court
erred in dismissing its Amended Petition for Corporate Rehabilitation.
V

Petitioner’s main argument for the continuation of corporate rehabilitation proceedings is that the Regional Trial Court should have allowed
petitioner to clarify its Amended Petition with respect to details regarding its assets and its liabilities to its creditors instead of dismissing
the Petition outright.142

The Regional Trial Court correctly dismissed the Amended Petition for Corporate Rehabilitation. The dismissal of the Amended Petition
did not emanate from petitioner’s failure to provide complete details on its assets and liabilities but on the trial court’s finding that
rehabilitation is no longer viable for petitioner. Under the Interim Rules of Procedure on Corporate Rehabilitation, a "petition shall be
dismissed if no rehabilitation plan is approved by the court upon the lapse of one hundred eighty (180) days from the date of the initial
hearing."143 The proceedings are also deemed terminated upon the trial court’s disapproval of a rehabilitation plan, "or a determination
that the rehabilitation plan may no longer be implemented in accordance with its terms, conditions, restrictions, or assumptions."144

Bank of the Philippine Islands v. Sarabia Manor Hotel Corp. 145 provides the test to help trial courts evaluate the economic feasibility of a
rehabilitation plan:

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and analysis of the
distressed corporation’s financial data must be conducted. If the results of such examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the assumptions made and financial goals stated in the proposed rehabilitation plan,
then it may be said that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to allow the corporation to
operate as an on-going concern, albeit under the terms and conditions stated in the approved rehabilitation plan. On the other hand, if
the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that the distressed corporation
could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation
would not be feasible. In such case, the rehabilitation court may convert the proceedings into one for liquidation. 146 (Emphasis supplied)

Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an economically
feasible rehabilitation plan:

a. The debtor has assets that can generate more cash if used in its daily operations than if sold.

b. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.

c. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is anchored
on realistic assumptions and goals.147 (Emhasis supplied)

These requirements put emphasis on liquidity: the cash flow that the distressed corporation will obtain from rehabilitating its assets and
operations. A corporation’s assets may be more than its current liabilities, but some assets may be in the form of land or capital equipment,
such as machinery or vessels. Rehabilitation sees to it that these assets generate more value if used efficiently rather than if liquidated.

On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:

(a) the absence of a sound and workable business plan;

(b) baseless and unexplained assumptions, targets and goals;

(c) speculative capital infusion or complete lack thereof for the execution of the business plan;

(d) cash flow cannot sustain daily operations; and

(e) negative net worth and the assets are near full depreciation or fully depreciated. 148

In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the Financial and Rehabilitation and
Insolvency Act of 2010 emphasizes on rehabilitation that provides for better present value recovery for its creditors.149

Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor will not be paid by the debtor when the
credit falls due. The court may order a suspension of payments to set a rehabilitation plan in motion; in the meantime, the creditor remains
unpaid. By the time the creditor is paid, the financial and economic conditions will have been changed. Money paid in the past has a
different value in the future.150 It is unfair if the creditor merely receives the face value of the debt. Present value of the credit takes into
account the interest that the amount of money would have earned if the creditor were paid on time.151

Trial courts must ensure that the projected cash flow from a business’ rehabilitation plan allows for the closest present value recovery for
its creditors. If the projected cash flow is realistic and allows the corporation to meet all its obligations, then courts should favor
rehabilitation over liquidation. However, if the projected cash flow is unrealistic, then courts should consider converting the proceedings
into that for liquidation to protect the creditors.

The Regional Trial Court correctly dismissed petitioner’s rehabilitation plan. It found that petitioner’s assets are non-
performing.152 Petitioner admitted this in its Amended Petition when it stated that its vessels were no longer serviceable. 153 In Wonder
Book Corporation v. Philippine Bank of Communications, 154 a rehabilitation plan is infeasible if the assets are nearly fully or fully
depreciated. This reduces the probability that rehabilitation may restore and reinstate petitioner to its former position of successful
operation and solvency.

Petitioner’s rehabilitation plan should have shown that petitioner has enough serviceable assets to be able to continue its business. Yet,
the plan showed that the source of funding would be to sell petitioner’s old vessels. Disposing of the assets constituting petitioner’s main
business cannot result in rehabilitation. A business primarily engaged as a shipping line cannot operate without its ships. On the other
hand, the plan to purchase new vessels sacrifices the corporation’s cash flow. This is contrary to the goal of corporate rehabilitation,
which is to allow present value recovery for creditors. The plan to buy new vessels after selling the two vessels it currently owns is neither
sound nor workable as a business plan.

The other part of the rehabilitation plan entails selling properties of petitioner’s sister company.1âwphi1 As pointed out by the Regional
Trial Court, this plan requires conformity from the sister company. Even if the two companies have the same directorship and ownership,
they are still two separate juridical entities. In BPI Family Savings Bank v. St. Michael Medical Center,155 this court refused to include in
the financial and liquidity assessment the financial statements of another corporation that the petitioning-corporation plans to merge with.

As pointed out by respondents, petitioner’s rehabilitation plan is almost impossible to implement. Even an ordinary individual with no
business acumen can discern the groundlessness of petitioner’s rehabilitation plan. Petitioner should have presented a more realistic and
practicable rehabilitation plan within the time periods allotted after initiatory hearing, or otherwise, should have opted for liquidation.

Finally, petitioner argues that after Judge Mendoza’s withdrawal as rehabilitation receiver, the Regional Trial Court should have appointed
a new rehabilitation receiver to evaluate the rehabilitation plan. We rule otherwise. It is not solely the responsibility of the rehabilitation
receiver to determine the validity of the rehabilitation plan. The Interim Rules of Procedure on Corporate Rehabilitation allows the trial
court to disapprove a rehabilitation plan 156 and terminate proceedings or, should the instances warrant, to allow modifications to a
rehabilitation plan.157

The Regional Trial Court rendered a decision in accordance with facts and law. Thus, we deny the plea for liberalization of procedural
rules. To grant the plea would cause more economic hardship and injustice to all those concerned.

WHEREFORE, the Petition is DENIED. The Court of Appeals Resolutions dated January 7, 2007 and March 30, 2007 in CA-G.R. SP No.
96974 are AFFIRMED.

SO ORDERED.

LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO v. RUBBERWORLD (PHILS.) INC. and ANTONIO YANG,
LAYA MANANGHAYA SALGADO & CO., CPAs

Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is the Decision[1] dated January 18,
2002 of the Court of Appeals (CA) in CA-G.R. SP No. 53356, as reiterated in its Resolution[2] of June 5, 2002, denying the petitioners
motion for reconsideration. The assailed CA decision annulled and set aside anearlier decision of the Labor Arbiter, as well as the
resolution/order and writ of execution issued by the National Labor Relations Commission (NLRC) in a labor dispute between the
petitioners and the respondents over which a suspension order had been issued by the Securities and Exchange Commission (SEC).

Petitioner Lingkod Manggagawa sa Rubberworld, Adidas-Anglo is a legitimate labor union whose members were employees of the
principal respondent, Rubberworld Philippines, Inc.(Rubberworld, for short), a domestic corporation engaged in the manufacture of
footwear, bags and garments.

The facts:

On August 26, 1994, Rubberworld filed with the Department of Labor and Employment (DOLE) a Notice of Temporary Partial
Shutdown due to severe financial crisis, therein announcing the formal actual company shutdown to take effect on September 26,
1994. A copy of said notice was served on the recognized labor union of Rubberworld, the Bisig Pagkakaisa-NAFLU, the union with
which the corporation had a collective bargaining agreement.
On September 1, 1994, Bisig Pagkakaisa-NAFLU staged a strike. It set up a picket line in front of the premises of Rubberworld and
even welded its gate. As a result, Rubberworld's premises closed prematurely even before the date set for the start of its temporary
partial shutdown.

On September 9, 1994, herein petitioner union, the Lingkod Manggagawa Sa Rubberworld, Adidas-Anglo (Lingkod, for
brevity), represented by its President, Sonia Esperanza, filed a complaint against Rubberworld and its Vice Chairperson, Mr. Antonio
Yang, for unfair labor practice (ULP), illegal shutdown, and non-payment of salaries and separation pay. In its complaint, docketed as
NLRC-NCR-Case No. 00-09-06637 (hereinafter referred to as ULP Case, for brevity), petitioner union alleged that it had filed a
petition for certification election during the freedom period, which petition was granted by the DOLE Regional Director. In the same
complaint, petitioner union claimed that the strike staged by Bisig Pagkakaisa-NAFLU was company-instigated/supported. The said
complaint was referred to Labor Arbiter Ernesto Dinopol for appropriate action.

On November 22, 1994, while the aforementioned complaint was pending with Labor Arbiter Dinopol, Rubberworld filed with the
SEC a Petition for Declaration of a State of Suspension of Payments with Proposed Rehabilitation Plan. The petition, docketed as SEC
Case No. 11-94-4920, was granted by the SEC in its Order[3] dated December 28, 1994, to wit:

Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld Philippines, Inc. pending
before any court, tribunal, office, board, body, Commission or sheriff are hereby deemed SUSPENDED.

Consequently, all pending incidents for preliminary injunctions, writ of attachments, foreclosures and the like are hereby rendered
moot and academic.

SO ORDERED.

Notwithstanding the SEC's aforementioned suspension order and despite Rubberworld's submission on January 10, 1995 of a Motion
to Suspend Proceedings,[4] Labor ArbiterDinopol went ahead with the ULP case and rendered his decision[5] thereon on August 16,
1995, saying in part, thus:

x x x [I]t is crystal clear that the SEC Order notwithstanding, Labor Arbiters and the National Labor Relations Commission should not
abdicate the jurisdiction which Article 217 of the Labor Code has conferred upon them subject to the condition that awards, if any,
should be presented to the Management Committee for processing and payment,

and disposing as follows:

WHEREFORE, decision is hereby rendered:

1) denying respondents motion to suspend proceedings;

2) declaring respondent Rubberworld Phils., Inc. to have committed unfair labor practice;

3) declaring the temporary shutdown to have been officially ended as of March 26, 1995;

4) ordering respondent Rubberworld Phils., Inc. to reinstate complainant-Union's members who indicate their intention to
be so reinstated within one month from the receipt of this decision by complainants' counsel;

5) ordering respondent Rubberworld Phils., Inc. to pay the members of the complainant-Union their backwages computed
from April 26, 1995 and separation pay if reinstatement is no longer possible plus 10% of the total award of attorney's.

For purposes of quantifying the backwages and separation pay, and identifying the recipients thereof, Mr. Ricardo Atienza of the
Research and Information Unit of this Commission is hereby directed to proceed to the office of the respondent Rubberworld whose
responsible officers are ordered to allow Mr. Atienza or his representative access to such records as may be necessary and render a
report thereon within 30 days from his receipt of this Decision.

For purposes of any appeal, the appeal bond is tentatively set at P500,000.00.

SO ORDERED.

On September 21, 1995, Rubberworld went on appeal to the NLRC, posting therefor a temporary appeal bond in the amount
of P500,000.00 as tentatively fixed by the Labor Arbiter. Meanwhile, on October 10, 1995, Ricardo Atienza of the NLRCs Research
and Information Unit submitted his report on the computation of the monetary awards, as ordered by the Labor Arbiter. He came
out with the total amount of Twenty Seven Million Five Hundred Six Thousand and Two Hundred Fifty-Five Pesos and 70/100
(P27,506,255.70). Despite Rubberworlds vigorous opposition, the First Division of the NLRC, in its Order[6] of January 22,
1996, required the corporation to post an appeal bond in an amount equivalent to Mr. Atienzas computation, with a warning that
failure to do so shall result in the dismissal of its appeal for non-perfection, thus:
Accordingly, respondents-appellants are hereby directed to upgrade or complete their Appeal Bond in the amount equivalent to
Twenty Seven Million Five Hundred Six Thousand Two Hundred Fifty-Five Pesos and 70/100 (P27,506,255.70) pursuant to the award
as computed by Ricardo O. Atienza within ten (10) days from receipt of this Order.

Failure of the respondents-appellants to comply with this directive will give this Commission no choice but to dismiss their appeal for
non-perfection thereof.

Its motion for reconsideration of the same Order having been denied by the NLRC in its Resolution[7] of March 29,
1996, Rubberworld directly went to this Court on a Petition for Certiorari,[8] interposing the sole issue of whether or not the NLRC
acted without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction in requiring the
corporation to post the upgraded appeal bond of P27,506,255.70 based on the computation of Mr. Atienza.

Meanwhile, on account of Rubberworlds failure to upgrade or complete its appeal bond as indicated in the NLRCs January 22,
1996 Order, the Commission, in a decision[9]dated June 28, 1996, did dismiss Rubberworlds appeal. Owing to this development,
Rubberworld filed with the Court a Supplemental Petition for Certiorari,[10] thereinincorporating its challenge to the said dismissal
order of the NLRC, contending that the labor tribunal acted without or in excess of jurisdiction.

On April 22, 1998, the SEC issued an Order[11] declaring Rubberworld as dissolved and lifting its earlier suspension order, to wit:

Finding that the continuance in business [of Rubberworld] would neither be feasible/profitable nor work to the best of interest of
the stockholders, parties-litigants, creditors, or the general public, xxx Rubberworld Philippines, Inc. is hereby DISSOLVED under
Section 6(d) of P.D. 902-A. Accordingly, the suspension Order is LIFTED.

The Laya Mananghaya Salgado & Co., CPAs is hereby appointed as liquidator to effect the dissolution of the petitioner.

SO ORDERED.

On August 18, 1995, a writ of execution[12] was issued by the NLRC in favor of the petitioner union with a copy thereof served on
the respondent corporation. Faced with this dilemma, Rubberworld filed with the Court an Urgent Omnibus Motion to declare null
and void the execution/garnishment made pursuant to the same writ. The motion, however, was denied by the Court in its
Resolution of November 18, 1998.

On February 8, 1999, Rubberworld filed with the Court a Motion to Admit its Amended Petition for Certiorari[13] and its
Supplement,[14] alleging therein that pursuant to the SEC Order dated December 28, 1994, supra, the proceedings before the Labor
Arbiter should have been suspended. Hence, since the Labor Arbiter disregarded the SECs suspension order, the subsequent
proceedings before it were null and void.

Consistent with its ruling in St. Martin Funeral Homes v. NLRC,[15] the Court, in its Resolution of February 29, 1999,
referred Rubberworlds amended petition for certiorari and its supplement to the CA for appropriate action, whereat it was docketed
as CA- G.R. SP No. 53356.

For its part, the CA, in its Resolution[16] of May 11, 2000, over the vehement opposition of the petitioner union, resolved to
admit Rubberworlds aforementioned amended petition and the supplement thereto in the interest of justice.

Eventually, in the herein assailed Decision[17] dated January 18, 2002, the CA granted Rubberworlds petition in CAG.R. SP. No.
53356 on the finding that the Labor Arbiter had indeed committed grave abuse of discretion when it proceeded with
the ULP case despite the SECs suspension order of December 28, 1994, and accordingly declared the
proceedings before it, including the subsequent orders by the NLRC dismissing Rubberworlds appeal and the writ of execution, null
and void.

With their motion for reconsideration having been denied in the CA in its Resolution[18] of June 5, 2002, petitioners are now with the
Court via the instant recourse, raising the following issues:

1) Whether the CA had committed grave abuse of discretion amounting to lack of jurisdiction or an excess in the exercise thereof
when it gave due course to the petition filed by Rubberworld (Phils.), Inc. and annulled and set aside the decisions rendered by the
labor arbiter a quo and the NLRC, when the said decisions had become final and executory warranting the outright dismissal of the
aforesaid petition;

2) Whether the CA had committed grave abuse of discretion and reversible error when it applied Section 5(d) and Section 6 (c) of
P.D. No. 902-A, as amended, to the case at bar;

3) Whether the CA had committed reversible error when it adopted and applied the rulings in the cases of Rubberworld (Phils.), Inc.,
or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al.[19]and Rubberworld (Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino Magsalin,
et. al.[20] to the case at bar.
We DENY.

It is the petitioners submission that the decision of the Labor Arbiter, the affirmatory decision of the NLRC and the latters dismissal
of Rubberworlds appeal, as well the writ of execution subsequently issued, can no longer be annulled and set aside, the same
having all become final and executory. Additionally, petitioners argue that no appeal from the decision of the Labor Arbiter was ever
perfected due to Rubberworld's failure to upgrade or post additional bond as ordered by the NLRC. Hence, they submit that the CA
acted in grave abuse of discretion in even giving due course to Rubberworlds petition in CA-G.R. SP No. 53356, let alone rendering a
decision thereon annulling and setting aside the proceedings before the Labor Arbiter and the NLRCs dismissal
of Rubberworlds appeal and the writ of execution issued following the dismissal of said appeal.

The Court disagrees.

While posting an appeal bond is indeed a requirement for the perfection of an appeal from the decision of the Labor Arbiter to the
NLRC, Rubberworlds failure to upgrade itsappeal bond cannot bar, in this particular instance, the review by the CA of the
lower court proceedings.

Given the factual milieu obtaining in this case, it cannot be said that the decision of the Labor Arbiter, or the decision/dismissal order
and writ of execution issued by the NLRC, could ever attain final and executory status. The Labor Arbiter completely disregarded and
violated Section 6(c) of Presidential Decree 902-A, as amended, which categorically mandates the suspension of all actions for claims
against a corporation placed under a management committee by the SEC. Thus, the proceedings before the Labor Arbiter and the
order and writ subsequently issued by the NLRC are all null and void for having been undertaken or issued in violation
of the SEC suspension Order dated December 28, 1994. As such, the Labor Arbiters decision, including the dismissal by the NLRC of
Rubberworls appeal, could not have achieved a final and executory status.

Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their
validity.[21] The Labor Arbiter's decision in this case is void ab initio, and therefore, non-existent.[22] A void judgment is in effect no
judgment at all. No rights are divested by it nor obtained from it. Being worthless in itself, all proceedings upon which the judgment
is founded are equally worthless. It neither binds nor bars anyone. All acts performed under it and all claims flowing out of it are
void.[23] In other words, a void judgment is regarded as a nullity, and the situation is the same as it would be if there were no
judgment. It accordingly leaves the party-litigants in the same position they were in before the trial.[24]

In fact, it is immaterial whether an appeal from the Labor Arbiter's decision was perfected or not, since a judgment void ab initio is
non-existent and cannot acquire finality.[25]The judgment is vulnerable to attack even when no appeal has been taken. Hence, such
judgment does not become final in the sense of depriving a party of his right to question its validity.[26] Hence, no grave abuse of
discretion attended the CA's taking cognizance of the petition in CA-G.R. SP No. 53356.

Besides, the Labor Arbiter, by simultaneously ruling in his decision of August 16, 1995 on both the merits of the ULP case and the
motion of Rubberworld to suspend the proceedings thereon, effectively required the respondent corporation to post a surety bond
before the same respondent could have questioned the arbiters action in not suspending the proceedings before him.

A bond is only mandatory from an appeal of the decision itself on the merits of the laborers' money claims to ensure payment
thereof. Had the Labor Arbiter taken heed ofRubberworlds motion to suspend proceedings when that motion was filed, and ruled
upon it separately, no bond would have been required for a review of his resolution thereon. As it were, the Labor Arbiter chose to
continue to decide the main case, then to incorporate in his decision the denial of Rubberworlds motion to suspend
proceedings, therebyeffectively requiring a bond on a question which would not have ordinarily required one.

We shall now address the more substantial issue in this case, namely, the applicability of the provisions of Section 5 (d) and Section
6 (c) of P.D. No. 902-A, as amended, reorganizing the SEC, vesting it with additional powers and placing it under the Office of the
President, which respectively read:

Section 5. In addition to the regulatory adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover
its liabilities, but is under the management of a rehabilitation receiver or management committee created pursuant to this Decree

Section 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers

c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the
Commission in accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary in order to
preserve the rights of the parties-litigants and/or protect the interest of the investing public and creditors: x x x Provided,
finally, That upon appointment of a management committee, the rehabilitation receiver, board or body, pursuant to this Decree,
all actions for claims against corporations, partnerships, or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly. [Emphasis supplied]

As correctly ruled by the CA, the issue of applicability in labor cases of the aforequoted provisions of PD 902-A, as amended, had
already been resolved by this Court in itsearlier decisions in Rubberworld (Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano,
et. al.[27] and Rubberworld (Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino,Magsalin, et. al,[28] supra.

In the first Rubberworld case, the Court upheld the applicability of PD 902-A to labor cases pursuant to Section 5(d) and Section 6(c)
thereof, with the following pronouncements:

It is plain from the foregoing provisions of the law that upon the appointment [by the SEC] of a management committee or a
rehabilitation receiver, all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of all pending actions for claims is to enable the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly
hinder or prevent the rescue of the debtor company. To allow such other actions to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against
the corporation instead of being directed toward its restructuring and rehabilitation.[29]

x x x The law is clear: upon the creation of a management committee or the appointment of a rehabilitation receiver, all claims
for actions shall be suspended accordingly. No exception in favor of labor claims is mentioned in the law. Since the law makes no
distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos. Allowing labor cases to
proceed clearly defeats the purpose of the automatic stay and severely encumbers the management committee's time and
resources. The said committee would need to defend against these suits, to the detriment of its primary and urgent duty to work
towards rehabilitating the corporation and making it viable again. To rule otherwise would open the floodgates to other similarly
situated claimants and forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the claims of private respondents,
its ruling could not be enforced as long as the petitioner is under the management committee. [30]

In Chua v. National Labor Relations Commission, we ruled that labor claims cannot proceed independently of a bankruptcy
liquidation proceeding, since these claims would spawn needless controversy, delays, and confusion. [31] With more reason, allowing
labor claims to continue in spite of a SEC suspension order in a rehabilitation case would merely lead to such results.

Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in
statutory construction that implied repeals are not favored. [32]Indeed, it is axiomatic that each and every statute must be construed
in a way that would avoid conflict with existing laws. True, the NLRC has the power to hear and decide labor disputes, but such
authority is deemed suspended when PD 902-A is put into effect by the Securities and Exchange Commission. [Emphasis supplied]

The second Rubberworld case reiterates the above pronouncements of the Court:

Presidential Decree No. 902-A is clear that all actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be suspended accordingly. The law did not
make any exception in favor of labor claims.

Thus, when NLRC proceeded to decide the case despite the SEC suspension order, the NLRC acted without or in excess of its
jurisdiction to hear and decide cases. As a consequence, any resolution, decision or order that it rendered or issued without
jurisdiction is a nullity. [Emphasis supplied]

Petitioners argue, however, that the doctrines laid down in the two aforecited cases cannot be made to
apply to the instant controversy because the SEC order therein only mandates that all pending cases against Rubberworld
Philippines, Inc. should be deemed suspended. Petitioners contend that the decision of the Labor Arbiter in the present case, as
well the order of dismissal and writ of execution issued by NLRC, have become final and executory by reason of Rubberworlds failure
to perfect its appeal by not upgrading or completing the required cash or surety bond as ordained by the NLRC. Petitioners thus
conclude that the doctrine of stare decisis cannot apply to the instant case.

Petitioners are in error.

It is incontrovertible that the denial of Rubberworlds motion to suspend proceedings in the principal case was incorporated in the
decision of the Labor Arbiter. Obviously, then, the Labor Arbiters decision of August
16, 1995 was rendered at a time when Lingkods complaint against Rubberworld in NLRC-NCR-Case No. 00-09-06637-94 ought to
have been suspended.
In short, at the time the SEC issued its suspension Order of December 28, 1994, the proceedings before the Labor Arbiter
were still very much pending. As such, no final and executory decision could have validly emanated therefrom. Like the CA, we do
not see any reason why the doctrine of stare decisis will not apply to this case.

For being well-grounded in fact and law, the assailed CA decision and resolution in CA-G.R. SP No. 53356 cannot be said to have been
tainted with grave abuse of discretion or issued in excess or want of jurisdiction. We find no reason to overturn such rulings.

WHEREFORE, the instant petition is DENIED and the assailed decision and resolution of the CA are AFFIRMED.

Costs against the petitioner.

SO ORDERED.

G.R. No. 164856 August 29, 2007

JUANITO A. GARCIA and ALBERTO J. DUMAGO, Petitioners,

vs.
PHILIPPINE AIRLINES, INC., Respondent.

This petition for review assails both the Decision 1 dated December 5, 2003 and the Resolution2 dated April 16, 2004 of the Court of
Appeals in CA-G.R. SP No. 69540, which had annulled the Resolutions 3 dated November 26, 2001 and January 28, 2002 of the National
Labor Relations Commission (NLRC) in NLRC Injunction Case No. 0001038-01, and also denied the motion for reconsideration,
respectively.

The antecedent facts of the case are as follows:

Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent Philippine Airlines, Inc. (PAL) as Aircraft Furnishers
Master "C" and Aircraft Inspector, respectively. They were assigned in the PAL Technical Center.

On July 24, 1995, a combined team of the PAL Security and National Bureau of Investigation (NBI) Narcotics Operatives raided the
Toolroom Section – Plant Equipment Maintenance Division (PEMD) of the PAL Technical Center. They found petitioners, with four others,
near the said section at that time. When the PAL Security searched the section, they found shabu paraphernalia inside the company-
issued locker of Ronaldo Broas who was also within the vicinity. The six employees were later brought to the NBI for booking and proper
investigation.

On July 26, 1995, a Notice of Administrative Charge 4 was served on petitioners. They were allegedly "caught in the act of sniffing shabu
inside the Toolroom Section," then placed under preventive suspension and required to submit their written explanation within ten days
from receipt of the notice.

Petitioners vehemently denied the allegations and challenged PAL to show proof that they were indeed "caught in the act of sniffing
shabu." Dumago claimed that he was in the Toolroom Section to request for an allen wrench to fix the needles of the sewing and zigzagger
machines. Garcia averred he was in the Toolroom Section to inquire where he could take the Trackster’s tire for vulcanizing.

On October 9, 1995, petitioners were dismissed for violation of Chapter II, Section 6, Article 46 (Violation of Law/Government Regulations)
and Chapter II, Section 6, Article 48 (Prohibited Drugs) of the PAL Code of Discipline.5 Both simultaneously filed a case for illegal dismissal
and damages.

In the meantime, the Securities and Exchange Commission (SEC) placed PAL under an Interim Rehabilitation Receiver due to severe
financial losses.

On January 11, 1999, the Labor Arbiter rendered a decision 6 in petitioners’ favor:

WHEREFORE, conformably with the foregoing, judgment is hereby rendered finding the respondents guilty of illegal suspension and
illegal dismissal and ordering them to reinstate complainants to their former position without loss of seniority rights and other privileges.
Respondents are hereby further ordered to pay jointly and severally unto the complainants the following:

Alberto J. Dumago - P409,500.00 backwages as of 1/10/99

34,125.00 for 13th month pay

Juanito A. Garcia - P1,290,744.00 backwages as of 1/10/99

107,562.00 for 13th month pay

The amounts of P100,000.00 and P50,000.00 to each complainant as and by way of moral and exemplary damages; and

The sum equivalent to ten percent (10%) of the total award as and for attorneys fees.

Respondents are directed to immediately comply with the reinstatement aspect of this Decision. However, in the event that reinstatement
is no longer feasible, respondent[s] are hereby ordered, in lieu thereof, to pay unto the complainants their separation pay computed at
one month for [e]very year of service.

SO ORDERED.7

Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation Receiver.

On appeal, the NLRC reversed the Labor Arbiter’s decision and dismissed the case for lack of merit. 8Reconsideration having been denied,
an Entry of Judgment9 was issued on July 13, 2000.

On October 5, 2000, the Labor Arbiter issued a Writ of Execution 10 commanding the sheriff to proceed:

xxxx

1. To the Office of respondent PAL Building I, Legaspi St., Legaspi Village, Makati City or to any of its Offices in the Philippines
and cause reinstatement of complainants to their former position and to cause the collection of the amount of [₱]549,309.60
from respondent PAL representing the backwages of said complainants on the reinstatement aspect;

2. In case you cannot collect from respondent PAL for any reason, you shall levy on the office equipment and other movables
and garnish its deposits with any bank in the Philippines, subject to the limitation that equivalent amount of such levied movables
and/or the amount garnished in your own judgment, shall be equivalent to [₱]549,309.60. If still insufficient, levy against
immovable properties of PAL not otherwise exempt from execution.

x x x x11

Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice of Garnishment 12 addressed to the
President/Manager of the Allied Bank Head Office in Makati City for the amount of ₱549,309.60.

PAL moved to lift the Notice of Garnishment while petitioners moved for the release of the garnished amount. PAL opposed petitioners’
motion. It also filed an Urgent Petition for Injunction which the NLRC resolved as follows:

WHEREFORE, premises considered, the Petition is partially GRANTED. Accordingly, the Writ of Execution dated October 5, 2000 and
related [N]otice of Garnishment [dated October 25, 2000] are DECLARED valid. However, the instant action is SUSPENDED and
REFERRED to the Receiver of Petitioner PAL for appropriate action.

SO ORDERED.13

PAL appealed to the Court of Appeals on the grounds that: (1) by declaring the writ of execution and the notice of garnishment valid, the
NLRC gave petitioners undue advantage and preference over PAL’s other creditors and hampered the task of the Permanent
Rehabilitation Receiver; and (2) there was no longer any legal or factual basis to reinstate petitioners as a result of the reversal by the
NLRC of the Labor Arbiter’s decision.

The appellate court ruled that the Labor Arbiter issued the writ of execution and the notice of garnishment without jurisdiction. Hence, the
NLRC erred in upholding its validity. Since PAL was under receivership, it could not have possibly reinstated petitioners due to
retrenchment and cash-flow constraints. The appellate court declared that a stay of execution may be warranted by the fact that PAL was
under rehabilitation receivership. The dispositive portion of the decision reads:

WHEREFORE, premises considered and in view of the foregoing, the instant petition is hereby GIVEN DUE COURSE. The assailed
November 26, 2001 Resolution, as well as the January 28, 2002 Resolution of public respondent National Labor Relations Commission
is hereby ANNULLED and SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction.
Consequently, the Writ of Execution and the Notice of Garnishment issued by the Labor Arbiter are hereby likewise ANNULLED and SET
ASIDE.

SO ORDERED.14
Hence, the instant petition raising a single issue as follows:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS ARE ENTITLED TO THEIR
ACCRUED WAGES DURING THE PENDENCY OF PAL’S APPEAL.15

Simply put, however, there are really two issues for our consideration: (1) Are petitioners entitled to their wages during the pendency of
PAL’s appeal to the NLRC? and (2) In the light of new developments concerning PAL’s rehabilitation, are petitioners entitled to execution
of the Labor Arbiter’s order of reinstatement even if PAL is under receivership?

We shall first resolve the issue of whether the execution of the Labor Arbiter’s order is legally possible even if PAL is under receivership.

We note that during the pendency of this case, PAL was placed by the SEC first, under an Interim Rehabilitation Receiver and finally,
under a Permanent Rehabilitation Receiver. The pertinent law on this matter, Section 5(d) of Presidential Decree (P.D.) No. 902-A, as
amended, provides that:

SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have original
and exclusive jurisdiction to hear and decide cases involving:

xxxx

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses property to cover all of its debts but foresees the impossibility of meeting them when
they respectively fall due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but
is under the [management of a rehabilitation receiver or] Management Committee created pursuant to this Decree.

The same P.D., in Section 6(c) provides that:

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the Commission
in accordance with the pertinent provisions of the Rules of Court in such other cases whenever necessary in order to preserve the rights
of the parties-litigants and/or protect the interest of the investing public and creditors:…Provided, finally, That upon appointment of a
management committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly.

xxxx

Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for claims against the corporation pending before
any court, tribunal or board shall ipso jure be suspended. The purpose of the automatic stay of all pending actions for claims is to enable
the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder
or prevent the rescue of the corporation.16

More importantly, the suspension of all actions for claims against the corporation embraces all phases of the suit, be it before the trial
court or any tribunal or before this Court.17 No other action may be taken, including the rendition of judgment during the state of
suspension. It must be stressed that what are automatically stayed or suspended are the proceedings of a suit and not just the payment
of claims during the execution stage after the case had become final and executory. 18

Furthermore, the actions that are suspended cover all claims against the corporation whether for damages founded on a breach of
contract of carriage, labor cases, collection suits or any other claims of a pecuniary nature. 19 No exception in favor of labor claims is
mentioned in the law.201avvphi1

This Court’s adherence to the above-stated rule has been resolute and steadfast as evidenced by its oft-repeated application in a plethora
of cases involving PAL, the most recent of which is Philippine Airlines, Inc. v. Zamora. 21

Since petitioners’ claim against PAL is a money claim for their wages during the pendency of PAL’s appeal to the NLRC, the same should
have been suspended pending the rehabilitation proceedings. The Labor Arbiter, the NLRC, as well as the Court of Appeals should have
abstained from resolving petitioners’ case for illegal dismissal and should instead have directed them to lodge their claim before PAL’s
receiver.22
However, to still require petitioners at this time to re-file their labor claim against PAL under the peculiar circumstances of the case – that
their dismissal was eventually held valid with only the matter of reinstatement pending appeal being the issue – this Court deems it legally
expedient to suspend the proceedings in this case.

WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant proceedings herein are SUSPENDED until further notice
from this Court. Accordingly, respondent Philippine Airlines, Inc. is hereby DIRECTED to quarterly update the Court as to the status of its
ongoing rehabilitation. No costs.

SO ORDERED.

JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T. CRISTOBAL,
Petitioners, v. REGIONAL TRIAL COURT, BRANCH 51, CITY OF MANILA, represented by HON. PRESIDING JUDGE ANTONIO M.
ROSALES; PEOPLE OF THE PHILIPPINES; and the SOCIAL SECURITY SYSTEM,

Before this Court is a petition for review on certiorari[1] under Rule 45 of the Rules of Court, seeking to set aside the April 27, 2006

Decision[2] and August 2, 2006 Resolution[3] of the Court of the Appeals (CA) in CA-G.R. SP No. 90947.

The facts of the case are as follows:

On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers of Silahis
International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24, a petition for Suspension of Payments and

Rehabilitation[4] in SEC Corp. Case No. 04-111180.

On October 18, 2004, the RTC of Manila, Branch 24, issued an Order [5] staying all claims against SIHI upon finding the petition sufficient

in form and substance. The pertinent portions of the Order read:

Finding the petition, together with its annexes, sufficient in form and substance and pursuant to Section 6, Rule 4 of the
Interim Rules on Corporate Rehabilitation, the Court hereby:

2) Stays the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action
or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the debtor. [6]

At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal charges [7] pending against petitioners in

Branch 51 of the RTC of Manila. These criminal charges were initiated by respondent Social Security System (SSS) and involved charges of violations

of Section 28 (h)[8] of Republic Act 8282, or the Social Security Act of 1997 (SSS law), in relation to Article 315 (1) (b)[9] of the Revised Penal Code,

or Estafa. Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to Suspend Proceedings. [10] Petitioners

argued that the stay order issued by Branch 24 should also apply to the criminal charges pending in Branch 51. Petitioners, thus, prayed that Branch 51
suspend its proceedings until the petition for rehabilitation was finally resolved.

On December 13, 2004, Branch 51 issued an Order[11] denying petitioners motion to suspend the proceedings. It ruled that the stay order

issued by Branch 24 did not cover criminal proceedings, to wit:

Clearly then, the issue is, whether the stay order issued by the RTC commercial court, Branch 24 includes the above-
captioned criminal cases.

The Court shares the view of the private complainants and the SSS that the said stay order does not include the prosecution
of criminal offenses. Precisely, the law criminalizes the non-remittance of SSS contributions by an employer to protect the
employees from unscrupulous employers. Clearly, in these cases, public interest requires that the said criminal acts be immediately
investigated and prosecuted for the protection of society.

From the foregoing, the inescapable conclusion is that the stay order issued by RTC Branch 24 does not include the
above-captioned cases which are criminal in nature.[12]

Branch 51 denied the motion for reconsideration filed by petitioners.

On August 19, 2005, petitioners filed a petition for certiorari[13] with the CA assailing the Order of Branch 51.

On April 27, 2006, the CA issued a Decision denying the petition, the dispositive portion of which reads:
 WHEREFORE, premises considered, the Petition is hereby DENIED and is accordingly DISMISSED. No costs. [14]

The CA discussed that violation of the provisions of the SSS law was a criminal liability and was, thus, personal to the offender. As such,

the CA held that the criminal proceedings against the petitioners should not be considered a claim against the corporation and, consequently, not

covered by the stay order issued by Branch 24.

Petitioners filed a Motion for Reconsideration,[15] which was, however, denied by the CA in a Resolution dated August 2, 2006.

Hence, herein petition, with petitioners raising a lone issue for this Courts resolution, to wit:

x x x WHETHER OR NOT THE STAY ORDER ISSUED BY BRANCH 24, REGIONAL TRIAL COURT OF MANILA, IN SEC
CORP. CASE NO. 04-111180 COVERS ALSO VIOLATION OF SSS LAW FOR NON-REMITTANCE OF PREMIUMS AND
VIOLATION OF [ARTICLE] [3] 515 OF THE REVISED PENAL CODE.[16]

The petition is not meritorious.

To begin with, corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown

that its continued operation is economically feasible and its creditors can recover more, by way of the present value of payments projected in the

rehabilitation plan, if the corporation continues as a going concern than if it is immediately liquidated. [17] It contemplates a continuance of corporate

life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to

enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings.[18]

A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Section 6 (c) of Presidential

Decree No. 902-A, as amended, provides for suspension of claims against corporations undergoing rehabilitation, to wit:

Section 6 (c). x x x

x x x Provided, finally, that upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to
this Decree, all actions for claims against corporations, partnerships or associations under management or receivership pending
before any court, tribunal, board or body, shall be suspended accordingly.[19]

In November 21, 2000, this Court En Banc promulgated the Interim Rules of Procedure on Corporate Rehabilitation,[20] Section 6, Rule 4 of

which provides a stay order on all claims against the corporation, thus:

Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from
the filing of the petition, issue an Order x x x; (b) staying enforcement of all claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise, against the debtor, its guarantors and sureties not solidarily liable with the
debtor;[21]

In Finasia Investments and Finance Corporation v. Court of Appeals,[22] the term "claim" has been construed to refer to debts or demands of

a pecuniary nature, or the assertion to have money paid. The purpose for suspending actions for claims against the corporation in a rehabilitation

proceeding is to enable the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial

interference that might unduly hinder or prevent the rescue of the debtor company. [23]

The issue to be resolved then is: does the suspension of all claims as an incident to a corporate rehabilitation also contemplate the suspension

of criminal charges filed against the corporate officers of the distressed corporation?

This Court rules in the negative.

In Rosario v. Co[24] (Rosario), a case of recent vintage, the issue resolved by this Court was whether or not during the pendency of

rehabilitation proceedings, criminal charges for violation of Batas Pambansa Bilang 22 should be suspended, was disposed of as follows:

x x x the gravamen of the offense punished by B.P. Blg. 22 is the act of making and issuing a worthless check; that is, a check that
is dishonored upon its presentation for payment. It is designed to prevent damage to trade, commerce, and banking caused by
worthless checks. In Lozano v. Martinez, this Court declared that it is not the nonpayment of an obligation which the law punishes.
The law is not intended or designed to coerce a debtor to pay his debt. The thrust of the law is to prohibit, under pain of penal
sanctions, the making and circulation of worthless checks. Because of its deleterious effects on the public interest, the practice is
proscribed by the law. The law punishes the act not as an offense against property, but an offense against public order. The prime
purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar
 offense, to isolate him from society, to reform and rehabilitate him or, in general, to maintain social order. Hence, the criminal
prosecution is designed to promote the public welfare by punishing offenders and deterring others.

Consequently, the filing of the case for violation of B.P. Blg. 22 is not a "claim" that can be enjoined within the
purview of P.D. No. 902-A. True, although conviction of the accused for the alleged crime could result in the restitution,
reparation or indemnification of the private offended party for the damage or injury he sustained by reason of the felonious
act of the accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal action.

A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the offended party. The
dominant and primordial objective of the criminal action is the punishment of the offender. The civil action is merely incidental to
and consequent to the conviction of the accused. The reason for this is that criminal actions are primarily intended to vindicate an
outrage against the sovereignty of the state and to impose the appropriate penalty for the vindication of the disturbance to the social
order caused by the offender. On the other hand, the action between the private complainant and the accused is intended solely to
indemnify the former.[25]

Rosario is at fours with the case at bar. Petitioners are charged with violations of Section 28 (h) of the SSS law, in relation to Article 315 (1) (b) of the

Revised Penal Code, or Estafa. The SSS law clearly criminalizes the non-remittance of SSS contributions by an employer to protect the employees

from unscrupulous employers. Therefore, public interest requires that the said criminal acts be immediately investigated and prosecuted for the

protection of society.

The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction of petitioners criminal

liabilities. There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more so, since the prime purpose of the

criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society,

reform and rehabilitate him or, in general, to maintain social order.[26] As correctly observed in Rosario,[27] it would be absurd for one who has engaged

in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are

charged in their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the

appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not

charged to defend the officers of the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court

also rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed

in Rosario, should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under

the category of claims, the execution of which would be subject to the stay order issued by the rehabilitation court. [28] The penal sanctions as a

consequence of violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found guilty after trial.

However, any civil indemnity awarded as a result of their conviction would be subject to the stay order issued by the rehabilitation court. Only to this

extent can the order of suspension be considered obligatory upon any court, tribunal, branch or body where there are pending actions for claims against

the distressed corporation.[29]

On a final note, this Court would like to point out that Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation

and Insolvency Act of 2010.[30] Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject

to the Stay or Suspension Order in rehabilitation proceedings, to wit:

The Stay or Suspension Order shall not apply:

xxxx

(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be affected by any
proceeding commenced under this Act.

Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for Branch 51 to proceed with the cases filed against

petitioners.
 WHEREFORE, premises considered, the petition is DENIED. The April 27, 2006 Decision and August 2, 2006 Resolution of the Court of

Appeals in CA-G.R. SP No. 90947 are AFFIRMED. The Regional Trial Court of Manila, Branch 51, is ORDERED to proceed with the criminal

cases filed against petitioners. SO ORDERED.

G.R. No. 165675 September 30, 2005

SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE, Petitioners,

vs.
ASB DEVELOPMENT CORPORATION, Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the June 29, 2004 Decision of the Court of Appeals in CA-G.R. SP No. 79420 which reversed
and set aside the Decision of the Office of the President; and its October 18, 2004 Resolution denying reconsideration thereof.

The antecedent facts show that on March 7, 2001, spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint 1 for
rescission of contract, refund of payments and damages, against ASB Development Corporation (ASBDC) before the Housing and Land
Use Regulatory Board (HLURB).

Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a condominium unit and a parking space in the BSA Twin
Tower-B Condominum located at Bank Drive, Ortigas Center, Mandaluyong City. They averred that despite full payment and demands,
ASBDC failed to deliver the property on or before December 1999 as agreed. They prayed for the rescission of the contract; refund of
payments amounting to P2,674,637.10; payment of moral and exemplary damages, attorney’s fees, litigation expenses, appearance fee
and costs of the suit.

ASBDC filed a motion to dismiss or suspend proceedings in view of the approval by the Securities and Exchange Commission (SEC) on
April 26, 2001 of the rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the appointment of a rehabilitation
receiver. The HLURB arbiter however denied the motion and ordered the continuation of the proceedings.

The arbiter found that under the Contract to Sell, ASBDC should have delivered the property to Sobrejuanite in December 1999; that the
latter had fully paid their obligations except the P50,000.00 which should be paid upon completion of the construction; and that rescission
of the contract with damages is proper.

The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing judgment is rendered ordering the rescission of the contracts to sell between the parties, and
further ordering the respondent [ASBDC] to pay the complainants [Sobrejuanite] the following:

a) all amortization payments by the complainants amounting to P2,674,637.10 plus 12% interest from the date of actual payment of each
amortization;

b) moral damages amounting to P200,000.00;

c) exemplary damages amounting to P100,000.00;

d) attorney’s fees amounting to P100,000.00;

e) litigation expenses amounting to P50,000.00.

All other claims and all counter-claims are hereby dismissed.

IT IS SO ORDERED.2

The HLURB Board of Commissioners3 affirmed the ruling of the arbiter that the approval of the rehabilitation plan and the appointment of
a rehabilitation receiver by the SEC did not have the effect of suspending the proceedings before the HLURB. The board held that the
HLURB could properly take cognizance of the case since whatever monetary award that may be granted by it will be ultimately filed as a
claim before the rehabilitation receiver. The board also found that ASBDC failed to deliver the property to Sobrejuanite within the
prescribed period. The dispositive portion of the Decision reads:

Wherefore the petition for review is denied and the decision of the office below is affirmed. It shall be understood that all monetary awards
shall still be filed as claims before the rehabilitation receiver. 4

ASBDC filed an appeal5 before the Office of the President which was dismissed 6 for lack of merit. Hence, ASBDC filed a petition 7 under
Section 1, Rule 43 of the Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No. 79420.

On June 29, 2004, the Court of Appeals rendered its assailed Decision, 8 the dispositive portion of which reads:

WHEREFORE, premises considered, the instant petition is GRANTED. The impugned decision dated June 27, 2003 of the Office of the
President is hereby REVERSED AND SET ASIDE. No pronouncement as to costs.

SO ORDERED.9

The Court of Appeals held that the approval by the SEC of the rehabilitation plan and the appointment of the receiver caused the
suspension of the HLURB proceedings. The appellate court noted that Sobrejuanite’s complaint for rescission and damages is
a claim under the contemplation of Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and A.M. No. 00-8-10-SC or
the Interim Rules of Procedure on Corporate Rehabilitation,because it sought to enforce a pecuniary demand. Therefore, jurisdiction lies
with the SEC and not HLURB. It also ruled that ASBDC was obliged to deliver the property in December 1999 but its financial reverses
warranted the extension of the period.

Sobrejuanite’s motion for reconsideration was denied 10 hence the instant petition which raises the following issues:

1. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT THE
SEC, NOT THE HLURB, HAS JURISDICTION OVER PETITIONER’S COMPLAINT, IN CONTRAVENTION TO LAW AND THE RULING
OF THIS HONORABLE COURT IN THE ARRANZA CASE.

2. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION WHEN IT RULED
THAT THE APPROVAL OF THE CORPORATE REHABILITATION PLAN AND THE APPOINTMENT OF A RECEIVER HAD THE
EFFECT OF SUSPENDING THE PROCEEDING IN THE HLURB, AND THAT THE MONETARY AWARD GIVEN BY THE HLURB
COULD NOT [BE] FILED IN THE SEC FOR PROPER DISPOSITION, NOT BEING IN ACCORDANCE WITH LAW AND
JURISPRUDENCE.

3. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND GRAVELY ABUSED ITS DISCRETION IN RULING THAT
RESPONDENT "IS JUSTIFIED IN EXTENDING THE AGREED DATE OF DELIVERY BY INVOKING AS GROUND THE FINANCIAL
CONSTRAINTS IT EXPERIENCED," BEING CONTRARY TO LAW AND IN EEFECT AN UNLAWFUL NOVATION OF THE
AGREEMENT OF THE DATE OF DELIVERY ENTERED INTO BY PETITIONERS AND RESPONDENT.11

The petition lacks merit.

Section 6(c) of PD No. 902-A empowers the SEC:

c) To appoint one or more receivers of the property, real and personal, which is the subject of the action pending before the Commission
… whenever necessary in order to preserve the rights of the parties-litigants and/or protect the interest of the investing public and
creditors: … Provided, finally, That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to
this Decree, all actions for claims against corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be suspended accordingly. [Emphasis added]

The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and
to protect and preserve the rights of party litigants as well as the interest of the investing public or creditors. 12 Such suspension is intended
to give enough breathing space for the management committee or rehabilitation receiver to make the business viable again, without
having to divert attention and resources to litigations in various fora. 13 The suspension would enable the management committee or
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or
prevent the "rescue" of the debtor company. To allow such other action to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead
of being directed toward its restructuring and rehabilitation.14

Thus, in order to resolve whether the proceedings before the HLURB should be suspended, it is necessary to determine whether the
complaint for rescission of contract with damages is a claim within the contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals,15 we construed claim to refer only to debts or demands pecuniary in nature.
Thus:

[T]he word ‘claim’ as used in Sec. 6(c) of P.D. 902-A refers to debts or demands of a pecuniary nature. It means "the assertion of a right
to have money paid. It is used in special proceedings like those before administrative court, on insolvency."

The word "claim" is also defined as:

Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach
gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured.

In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim.

As used in statutes requiring the presentation of claims against a decedent’s estate, "claim" is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against the deceased in his lifetime and could have been reduced to
simple money judgments; and among these are those founded upon contract.

In Arranza v. B.F. Homes, Inc.,16 claim is defined as referring to actions involving monetary considerations.

Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc. were promulgated prior to the effectivity of
the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000. The interim rules define a claim as referring
to all claims or demands, of whatever nature or character against a debtor or its property, whether for money or otherwise. The definition
is all-encompassing as it refers to all actions whether for money or otherwise. There are no distinctions or exemptions.

Incidentally, although the petition for rehabilitation with prayer for suspension of actions and proceedings was filed before the SEC on
May 2, 2000,17 or prior to the effectivity of the interim rules, the same would still apply pursuant to Section 1, Rule 1 thereof which provides:

Section 1. Scope – These Rules shall apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to
Presidential Decree No. 902-A, as amended.

Clearly then, the complaint filed by Sobrejuanite is a claim as defined under the Interim Rules of Procedure on Corporate
Rehabilitation. Even under our rulings in Finasia Investments and Finance Corp. v. Court of Appeals and Arranza v. B.F. Homes, Inc., the
complaint for rescission with damages would fall under the category of claimconsidering that it is for pecuniary considerations.

In their complaint, Sobrejuanite pray for the rescission of the contract and the refund of P2,674,637.10 representing their total payments
to ASBDC; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees; P50,000.00 as
litigation expenses; P1,500.00 per hearing as appearance fees; and costs of the suit.

In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from the date of actual payment of
each amortization, representing the refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees; and P50,000.00 as litigation expenses.

As such, the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group of Companies’
rehabilitation plan and the appointment of its rehabilitation receiver. By the suspension of the proceedings, the receiver is allowed to fully
devote his time and efforts to the rehabilitation and restructuring of the distressed corporation.

It is well to note that even the execution of final judgments may be held in abeyance when a corporation is under rehabilitation.18 Hence,
there is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the motion to suspend was
filed soon after the institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue
preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the vice sought to be prevented by Section
6(c) of PD 902-A. Thus:

As between creditors, the key phrase is "equality is equity." When a corporation threatened by bankruptcy is taken over by a receiver, all
the creditors should stand on equal footing. Not anyone of them should be given any preference by paying one or some of them ahead
of the others. This is precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead of
creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with the receiver who is a duly
appointed officer of the SEC.19

Petitioners’ reliance on Arranza v. B.F. Homes, Inc.20 is misplaced. In that case, we held that the HLURB retained its jurisdiction despite
the rehabilitation proceedings since the claim filed by the homeowners did not involve pecuniary considerations. The claim therein was
for specific performance to enforce the homeowners’ rights as regards right of way, open spaces, road and perimeter wall repairs, and
security. However, it can also be deduced therefrom that if the claim was for monetary awards, the proceedings before the HLURB should
be suspended during the rehabilitation. Thus:

No violation of the SEC order suspending payments to creditors would result as far as petitioners’ complaint before the HLURB is
concerned. To reiterate, what petitioners seek to enforce are respondent’s obligations as a subdivision developer. Such claims
are basically not pecuniary in nature although it could incidentally involve monetary considerations. All that petitioners’ claims entail is the
exercise of proper subdivision management on the part of the SEC-appointed Board of Receivers towards the end that homeowners shall
enjoy the ideal community living that respondent portrayed they would have when they bought real estate from it.

Neither may petitioners be considered as having "claims" against respondent within the context of the following proviso of Section 6 (c)
of P.D. No. 902-A, …to warrant suspension of the HLURB proceedings.

.…

In this case, under the complaint for specific performance before the HLURB, petitioners do not aim to enforce a pecuniary demand. Their
claim for reimbursement should be viewed in the light of respondent’s alleged failure to observe its statutory and contractual obligations
to provide petitioners a "decent human settlement" and "ample opportunities for improving their quality of life." The HLURB, not the SEC,
is equipped with the expertise to deal with that matter.21

Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite
on or before December 1999. Nonetheless, the same was deemed extended due to the financial reverses experienced by the company.
Section 7 of the Contract to Sell allows the developer to extend the period of delivery on account of causes beyond its control, such as
financial reverses.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated June 29, 2004 in CA-G.R. SP No. 79420
and its Resolution dated October 18, 2004, are AFFIRMED.

SO ORDERED.

[G.R. No. 160732. June 21, 2004] METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner, vs. HON. REYNALDO
B. DAWAY, IN HIS CAPACITY AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 90 AND
MAYNILAD WATER SERVICES, INC., respondents

On November 17, 2003, the Regional Trial Court (RTC) of Quezon City, Branch 90, made a determination that the Petition for
Rehabilitation with Prayer for Suspension of Actions and Proceedings filed by Maynilad Water Services, Inc. (Maynilad) conformed
substantially to the provisions of Sec. 2, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). It forthwith
issued a Stay Order[1] which states, in part, that the court was thereby:

2. Staying enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or
otherwise, against the petitioner, its guarantors and sureties not solidarily liable with the petitioner;
3. Prohibiting the petitioner from selling, encumbering, transferring, or disposing in any manner any of its properties except in
the ordinary course of business;
4. Prohibiting the petitioner from making any payment of its liabilities, outstanding as at the date of the filing of the petition;
xxxxxxxxx
Subsequently, on November 27, 2003, public respondent, acting on two Urgent Ex Parte motions[2] filed by respondent Maynilad,
issued the herein questioned Order[3] which stated that it thereby:

1. DECLARES that the act of MWSS in commencing on November 24, 2003 the process for the payment by the banks of US$98 million out of the
US$120 million standby letter of credit so the banks have to make good such call/drawing of payment of US$98 million by MWSS not later than
November 27, 2003 at 10:00 P. M. or any similar act for that matter, is violative of the above-quoted sub-paragraph 2.) of the dispositive portion of
this Courts Stay Order dated November 17, 2003.

2. ORDERS MWSS through its officers/officials to withdraw under pain of contempt the written certification/notice of draw to Citicorp International
Limited dated November 24, 2003 and DECLARES void any payment by the banks to MWSS in the event such written certification/notice of draw is
not withdrawn by MWSS and/or MWSS receives payment by virtue of the aforesaid standby letter of credit.
 Aggrieved by this Order, petitioner Manila Waterworks & Sewerage System (MWSS) filed this petition for review by way
of certiorari under Rule 65 of the Rules of Court questioning the legality of said order as having been issued without or in excess of the
lower courts jurisdiction or that the court a quo acted with grave abuse of discretion amounting to lack or excess of jurisdiction.[4]

ANTECEDENTS OF THE CASE

On February 21, 1997, MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage, operate, repair,
decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which Maynilad
undertook to pay the corresponding concession fees on the dates agreed upon in said agreement [5] which, among other things, consisted
of payments of petitioners mostly foreign loans.
To secure the concessionaires performance of its obligations under the Concession Agreement, Maynilad was required under
Section 6.9 of said contract to put up a bond, bank guarantee or other security acceptable to MWSS.
In compliance with this requirement, Maynilad arranged on July 14, 2000 for a three-year facility with a number of foreign banks, led
by Citicorp International Limited, for the issuance of an Irrevocable Standby Letter of Credit [6] in the amount of US$120,000,000 in favor
of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated.
Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it hoped to recover the losses it
had allegedly incurred and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar. Failing to get
what it desired, Maynilad issued a Force Majeure Notice on March 8, 2001 and unilaterally suspended the payment of the concession
fees. In an effort to salvage the Concession Agreement, the parties entered into a Memorandum of Agreement (MOA) [7] on June 8, 2001
wherein Maynilad was allowed to recover foreign exchange losses under a formula agreed upon between them. Sometime in August
2001 Maynilad again filed another Force Majeure Notice and, since MWSS could not agree with the terms of said Notice, the matter was
referred on August 30, 2001 to the Appeals Panel for arbitration. This resulted in the parties agreeing to resolve the issues through an
amendment of the Concession Agreement on October 5, 2001, known as Amendment No. 1, [8] which was based on the terms set down
in MWSS Board of Trustees Resolution No. 457-2001, as amended by MWSS Board of Trustees Resolution No. 487-2001,[9] which
provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would incur under the
terms of the Concession Agreement.
As part of this agreement, Maynilad committed, among other things, to:
a) infuse the amount of UD$80.0 million as additional funding support from its stockholders;
b) resume payment of the concession fees; and
c) mutually seek the dismissal of the cases pending before the Court of Appeals and with Minor Dispute Appeals Panel.
However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to
comply with its obligations under the Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that would
cover Maynilads foreign exchange losses. On December 9, 2002, Maynilad filed a Notice of Early Termination of the concession, which
was challenged by MWSS. This matter was eventually brought before the Appeals Panel on January 7, 2003 by MWSS.[10] On November
7, 2003, the Appeals Panel ruled that there was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession
Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due.
The award of the Appeals Panel became final on November 22, 2003. MWSS, thereafter, submitted a written notice[11] on November
24, 2003, to Citicorp International Limited, as agent for the participating banks, that by virtue of Maynilads failure to perform its obligations
under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment in the
amount of US$98,923,640.15.
Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a quo which resulted
in the issuance of the Stay Order of November 17, 2003 and the disputed Order of November 27, 2003. [12]

PETITIONERS CASE

Petitioner hereby raises the following issues:

1. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR AND/OR ACT PATENTLY WITHOUT JURISDICTION OR
IN EXCESS OF JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN CONSIDERING THE PERFORMANCE BOND OR ASSETS OF THE ISSUING BANKS AS PART OR
PROPERTY OF THE ESTATE OF THE PRIVATE RESPONDENT MAYNILAD SUBJECT TO REHABILITATION.
2. DID THE HONORABLE PRESIDING JUDGE ACT WITH LACK OR EXCESS OF JURISDICTION OR COMMIT A GRAVE
ERROR OF LAW IN HOLDING THAT THE PERFORMANCE BOND OBLIGATIONS OF THE BANKS
WERE NOT SOLIDARY IN NATURE.
 3. DID THE HONORABLE PRESIDING JUDGE GRAVELY ERR IN ALLOWING MAYNILAD TO IN EFFECT SEEK A REVIEW
OR APPEAL OF THE FINAL AND BINDING DECISION OF THE APPEALS PANEL.
In support of the first issue, petitioner maintains that as a matter of law, the US$120 Million Standby Letter of Credit and Performance
Bond are not property of the estate of the debtor Maynilad and, therefore, not subject to the in rem rehabilitation jurisdiction of the trial
court.
Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of Maynilad but only assets of the
banks. Furthermore, a call on the Standby Letter of Credit cannot also be considered a claim falling under the purview of the stay order
as alleged by respondent as it is not directed against the assets of respondent Maynilad.
Petitioner concludes that the public respondent erred in declaring and holding that the commencement of the process for the
payment of US$98 million is a violation of the order issued on November 17, 2003.

RESPONDENT MAYNILADS CASE

Respondent Maynilad seeks to refute this argument by alleging that:

a) the order objected to was strictly and precisely worded and issued after carefully considering/evaluating the import of the arguments and documents
referred to by Maynilad, MWSS and/or creditors Chinatrust Commercial Bank and Suez in relation to admissions, pleadings and/or pertinent
records[13] and that public respondent had the authority to issue the same;

b) public respondent never considered nor held that the Performance bond or assets of the issuing banks are part or property of the estate of respondent
Maynilad subject to rehabilitation and which respondent Maynilad has not and has never claimed to be; [14]

c) what is relevant is not whether the performance bond or assets of the issuing banks are part of the estate of respondent Maynilad but whether the act
of petitioner in commencing the process for the payment by the banks of US$98 million out of the US$120 million performance bond is covered and/or
prohibited under sub-paragraphs 2.) and 4.) of the stay order dated November 17, 2003;

d) the jurisdiction of public respondent extends not only to the assets of respondent Maynilad but also over persons and assets of all those affected by
the proceedings x x x upon publication of the notice of commencement;[15] and

e) the obligations under the Standby Letter of Credit are not solidary and are not exempt from the coverage of the stay order.

OUR RULING

We will discuss the first two issues raised by petitioner as these are interrelated and make up the main issue of the petition before
us which is, did the rehabilitation court sitting as such, act in excess of its authority or jurisdiction when it enjoined herein petitioner from
seeking the payment of the concession fees from the banks that issued the Irrevocable Standby Letter of Credit in its favor and for the
account of respondent Maynilad?
The public respondent relied on Sec. 1, Rule 3 of the Interim Rules on Corporate Rehabilitation to support its jurisdiction over the
Irrevocable Standby Letter of Credit and the banks that issued it. The section reads in part that jurisdiction over those affected by the
proceedings is considered acquired upon the publication of the notice of commencement of proceedings in a newspaper of general
circulation and goes further to define rehabilitation as an in rem proceeding. This provision is a logical consequence of the in rem nature
of the proceedings, where jurisdiction is acquired by publication and where it is necessary that the assets of the debtor come within the
courts jurisdiction to secure the same for the benefit of creditors. The reference to all those affected by the proceedings covers creditors
or such other persons or entities holding assets belonging to the debtor under rehabilitation which should be reflected in its audited
financial statements. The banks do not hold any assets of respondent Maynilad that would be material to the rehabilitation proceedings
nor is Maynilad liable to the banks at this point.
Respondent Maynilads Financial Statement as of December 31, 2001 and 2002 do not show the Irrevocable Standby Letter of
Credit as part of its assets or liabilities, and by respondent Maynilads own admission it is not. In issuing the clarificatory order of November
27, 2003, enjoining petitioner from claiming from an asset that did not belong to the debtor and over which it did not acquire jurisdiction,
the rehabilitation court acted in excess of its jurisdiction.
Respondent Maynilad insists, however, that it is Sec. 6 (b), Rule 4 of the Interim Rules that supports its claim that the commencement
of the process to draw on the Standby Letter of Credit is an enforcement of claim prohibited by and under the Interim Rules and the order
of public respondent.
Respondent Maynilad would persuade us that the above provision justifies a leap to the conclusion that such an enforcement is
prohibited by said section because it is a claim against the debtor, its guarantors and sureties not solidarily liable with the debtor and that
there is nothing in the Standby Letter of Credit nor in law nor in the nature of the obligation that would show or require the obligation of
the banks to be solidary with the respondent Maynilad.
 We disagree.
First, the claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non-
performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees.
Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties, but
only those claims against guarantors and sureties who are not solidarily liable with the debtor. Respondent Maynilads claim that
the banks are not solidarily liable with the debtor does not find support in jurisprudence.
We held in Feati Bank & Trust Company v. Court of Appeals[16] that the concept of guarantee vis--vis the concept of an irrevocable
letter of credit are inconsistent with each other. The guarantee theory destroys the independence of the banks responsibility from the
contract upon which it was opened and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee, the
guarantors obligation is merely collateral and it arises only upon the default of the person primarily liable. On the other hand, in an
irrevocable letter of credit, the bank undertakes a primary obligation. We have also defined a letter of credit as an engagement by a bank
or other person made at the request of a customer that the issuer shall honor drafts or other demands of payment upon compliance with
the conditions specified in the credit.[17]
Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of
documents[18] and is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his
credit against the applicant of the letter, duly paid in the amount specified in the letter. [19] They are in effect absolute undertakings to pay
the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory
contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. [20] What distinguishes
letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other required
shipping documents are presented to it. [21] They are definite undertakings to pay at sight once the documents stipulated therein are
presented.
Letters of Credits have long been and are still governed by the provisions of the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce. In the 1993 Revision it provides in Art. 2 that the expressions Documentary Credit(s)
and Standby Letter(s) of Credit mean any arrangement, however made or described, whereby a bank acting at the request and on
instructions of a customer or on its own behalf is to make payment against stipulated document(s) and Art. 9 thereof defines the liability
of the issuing banks on an irrevocable letter of credit as a definite undertaking of the issuing bank, provided that the stipulated documents
are presented to the nominated bank or the issuing bank and the terms and conditions of the Credit are complied with, to pay at sight if
the Credit provides for sight payment.[22]
We have accepted, in Feati Bank and Trust Company v. Court of Appeals[23] and Bank of America NT & SA v. Court of Appeals,[24] to
the extent that they are pertinent, the application in our jurisdiction of the international credit regulatory set of rules known as the Uniform
Customs and Practice for Documentary Credits (U.C.P) issued by the International Chamber of Commerce, which we said in Bank of the
Philippine Islands v. Nery[25] was justified under Art. 2 of the Code of Commerce, which states:

Acts of commerce, whether those who execute them be merchants or not, and whether specified in this Code or not should be governed by the provisions
contained in it; in their absence, by the usages of commerce generally observed in each place; and in the absence of both rules, by those of the civil
law.

The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein petitioner as the prohibition is on the
enforcement of claims against guarantors or sureties of the debtors whose obligations are not solidary with the debtor. The participating
banks obligation are solidary with respondent Maynilad in that it is a primary, direct, definite and an absolute undertaking to pay and is
not conditioned on the prior exhaustion of the debtors assets. These are the same characteristics of a surety or solidary obligor.
Being solidary, the claims against them can be pursued separately from and independently of the rehabilitation case, as held
in Traders Royal Bank v. Court of Appeals[26] and reiterated in Philippine Blooming Mills, Inc. v. Court of Appeals,[27] where we said that
property of the surety cannot be taken into custody by the rehabilitation receiver (SEC) and said surety can be sued separately to enforce
his liability as surety for the debts or obligations of the debtor. The debts or obligations for which a surety may be liable include future
debts, an amount which may not be known at the time the surety is given.
The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks are not solidary with those of
respondent Maynilad. On the contrary, it is issued at the request of and for the account of Maynilad Water Services, Inc., in favor of the
Metropolitan Waterworks and Sewerage System, as a bond for the full and prompt performance of the obligations by the concessionaire
under the Concession Agreement[28] and herein petitioner is authorized by the banks to draw on it by the simple act of delivering to the
agent a written certification substantially in the form Annex B of the Letter of Credit. It provides further in Sec. 6, that for as long as the
Standby Letter of Credit is valid and subsisting, the Banks shall honor any written Certification made by MWSS in accordance with Sec.
2, of the Standby Letter of Credit regardless of the date on which the event giving rise to such Written Certification arose. [29]
Taking into consideration our own rulings on the nature of letters of credit and the customs and usage developed over the years in
the banking and commercial practice of letters of credit, we hold that except when a letter of credit specifically stipulates otherwise, the
obligation of the banks issuing letters of credit are solidary with that of the person or entity requesting for its issuance, the same being a
direct, primary, absolute and definite undertaking to pay the beneficiary upon the presentation of the set of documents required therein.
The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act on the obligation of the banks
under the Letter of Credit under the argument that this was not a solidary obligation with that of the debtor. Being a solidary obligation,
the letter of credit is excluded from the jurisdiction of the rehabilitation court and therefore in enjoining petitioner from proceeding against
the Standby Letters of Credit to which it had a clear right under the law and the terms of said Standby Letter of Credit, public respondent
acted in excess of his jurisdiction.

ADDITIONAL ISSUES

We proceed to consider the other issues raised in the oral arguments and included in the parties memoranda:
1. Respondent Maynilad argues that petitioner had a plain, speedy and adequate remedy under the Interim Rules itself which
provides in Sec. 12, Rule 4 that the court may on motion or motu proprio, terminate, modify or set conditions for the continuance of the
stay order or relieve a claim from coverage thereof. We find, however, that the public respondent had already accomplished this during
the hearing set for the two Urgent Ex Parte motions filed by respondent Maynilad on November 21 and 24, 2003, [30] where the parties
including the creditors, Suez and Chinatrust Commercial presented their respective arguments. [31] The public respondent then ruled, after
carefully considering/evaluating the import of the arguments and documents referred to by Maynilad, MWSS and/or the creditors
Chinatrust Commercial Bank and Suez in relation to the admissions, the pleadings, and/or pertinent portions of the records, this court is
of the considered and humble view that the issue must perforce be resolved in favor of Maynilad. [32] Hence to pursue their opposition
before the same court would result in the presentation of the same arguments and issues passed upon by public respondent.
Furthermore, Sec. 5, Rule 3 of the Interim Rules would preclude any other effective remedy questioning the orders of the
rehabilitation court since they are immediately executory and a petition for review or an appeal therefrom shall not stay the execution of
the order unless restrained or enjoined by the appellate court. In this situation, it had no other remedy but to seek recourse to us through
this petition for certiorari.
In Silvestre v. Torres and Oben,[33] we said that it is not enough that a remedy is available to prevent a party from making use of the
extraordinary remedy of certiorari but that such remedy be an adequate remedy which is equally beneficial, speedy and sufficient, not
only a remedy which at some time in the future may offer relief but a remedy which will promptly relieve the petitioner from the injurious
acts of the lower tribunal. It is the inadequacy -- not the mere absence -- of all other legal remedies and the danger of failure of justice
without the writ, that must usually determine the propriety of certiorari.[34]
2. Respondent Maynilad argues that by commencing the process for payment under the Standby Letter of Credit, petitioner violated
an immediately executory order of the court and, therefore, comes to Court with unclean hands and should therefore be denied any relief.
It is true that the stay order is immediately executory. It is also true, however, that the Standby Letter of Credit and the banks that
issued it were not within the jurisdiction of the rehabilitation court. The call on the Standby Letter of Credit, therefore, could not be
considered a violation of the Stay Order.
3. Respondents claim that the filing of the petition pre-empts the original jurisdiction of the lower court is without merit. The purpose
of the initial hearing is to determine whether the petition for rehabilitation has merit or not. The propriety of the stay order as well as the
clarificatory order had already been passed upon in the hearing previously had for that purpose. The determination of whether the public
respondent was correct in enjoining the petitioner from drawing on the Standby Letter of Credit will have no bearing on the determination
to be made by public respondent whether the petition for rehabilitation has merit or not. Our decision on the instant petition does not pre-
empt the original jurisdiction of the rehabilitation court.
WHEREFORE, the petition for certiorari is GRANTED. The Order of November 27, 2003 of the Regional Trial Court of Quezon City,
Branch 90, is hereby declared NULL AND VOID andSET ASIDE. The status quo Order herein previously issued is hereby LIFTED. In
view of the urgency attending this case, this decision is immediately executory.

G.R. No. 224764

BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M.
BALBIDO, and EXAMINER REYNANTE DP. MARTIREZ, Petitioners,
vs.
LEPANTO CERAMICS, INC., Respondent.

This is a direct recourse to the Court from the Regional Trial Court (RTC) of Calamba City, Province of Laguna, Branch 35 (RTC Br. 35),
through a petition for review on certiorari, 1 raising a pure question of law. In particular, petitioners Bureau of Internal Revenue (BIR),
Assistant Commissioner Alfredo V. Misajon (Misajon), Group Supervisor Rolando M. Balbido (Balbido ), and Examiner Reynante DP.
Martirez (Martirez; collectively, petitioners) assail the Decision2 dated June 1, 2015 and the Order3 dated October 26, 2015 of the RTC
Br. 35 in Civil Case No. 4813- 2014-C, which found Misajon, Balbido, and Martirez (Misajon, et al.) guilty of indirect contempt and,
accordingly, ordered them to pay a fine of ₱5,000.00 each.

The Facts

On December 23, 2011, respondent Lepanto Ceramics, Inc. (LCI) - a corporation duly organized and existing under Philippine Laws with
principal office address in Calamba City, Laguna - filed a petition 4 for corporate rehabilitation pursuant to Republic Act No. (RA)
10142, 5 otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed before the RTC ofCalamba City,
Branch 34, the designated Special Commercial Court in Laguna (Rehabilitation Court). Essentially, LCI alleged that due to the financial
difficulties it has been experiencing dating back to the Asian financial crisis, it had entered into a state of insolvency considering its inability
to pay its obligations as they become due and that its total liabilities amounting to ₱4,213 ,682, 715. 00 far exceed its total assets worth
₱1,112,723,941.00. Notably, LCI admitted in the annexes attached to the aforesaid Petition its tax liabilities to the national government
in the amount of at least ₱6,355,368.00.6

On January 13, 2012, the Rehabilitation Court issued a Commencement Order,7 which, inter alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited
LCI from making any payment of its liabilities outstanding as of even date, except as may be provided under RA 10142; and (d) directed
the BIR to file and serve on LCI its comment or opposition to the petition, or its claims against LCI. 8 Accordingly, the Commencement
Order was published in a newspaper of general circulation and the same, together with the petition for corporate rehabilitation, were
personally served upon LCI's creditors, including the BIR.9

Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner, respectively, of the BIR's
Large Taxpayers Service, sent LCI a notice of informal conference10 dated May 27, 2013, informing the latter of its deficiency internal tax
liabilities for the Fiscal Year ending June 30, 2010. In response, LCI's court-appointed receiver, Roberto L. Mendoza, sent BIR a letter-
reply, reminding the latter of the pendency of LCI's corporate rehabilitation proceedings, as well as the issuance of a Commencement
Order in connection therewith. Undaunted, the BIR sent LCI a Formal Letter of Demand 11 dated May 9, 2014, requiring LCI to pay
deficiency taxes in the amount of P567,519,348.39. 12 This prompted LCI to file a petition 13 for indirect contempt dated August 13, 2014
against petitioners before RTC Br. 35. In said petition, LCI asserted that petitioners' act of pursuing the BIR's claims for deficiency taxes
against LCI outside of the pending rehabilitation proceedings in spite of the Commencement Order issued by the Rehabilitation Court is
a clear defiance of the aforesaid Order. As such, petitioners must be cited for indirect contempt in accordance with Rule 71 of the Rules
of Court in relation to Section 16 of RA 10142.14

For their part, petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt as it is only the Rehabilitation Court,
being the one that issued the Commencement Order, which has the authority to determine whether or not such Order was defied; (b) the
instant petition had already been mooted by the Rehabilitation Court's Order15 dated August 28, 2014 which declared LCI to have been
successfully rehabilitated resulting in the termination of the corporate rehabilitation proceedings; (c) their acts do not amount to a defiance
of the Commencement Order as it was done merely to toll the prescriptive period in collecting deficiency taxes, and thus, sanctioned by
the Rules of Procedure of the FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of Demand do not amount
to a "legal action or other recourse" against LCI outside of the rehabilitation proceedings; and (e) the indirect contempt proceedings
interferes with the exercise of their functions to collect taxes due to the govemment. 16

The RTC Br. 35 Ruling

In a Decision17 dated June 1, 2015, the RTC Br. 35 found Misajon, et al. guilty of indirect contempt and, accordingly, ordered them to pay
a fine of ₱5,000.00 each. 18 Preliminarily, the RTC Br. 35 ruled that it has jurisdiction over LCI's petition for indirect contempt as it is
docketed, heard, and decided separately from the principal action. 19 Going to petitioners' other contentions, the RTC found that: (a) the
supervening termination of the rehabilitation proceedings and the consequent lifting of the Commencement Order did not render moot
the petition for indirect contempt as the acts complained of were already consummated; (b) petitioners' acts of sending LCI a notice of
informal conference and Formal Letter of Demand are covered by the Commencement Order as they were for the purpose of pursuing
and enforcing a claim for deficiency taxes, and thus, are in clear defiance of the Commencement Order; and (c) petitioners could have
tolled the prescriptive period to collect deficiency taxes without violating the Commencement Order by simply ventilating their claim before
the rehabilitation proceedings, which they were adequately notified of. In this relation, the RTC Br. 35 held that while the BIR is a juridical
entity which can only act through its authorized intermediaries, it cannot be concluded that it authorized the latter to commit the
contumacious acts complained of, i.e., defiance of the Commencement Order. Thus, absent any contrary evidence, only those individuals
who performed such acts, namely, Misajon, et al., should be cited for indirect contempt of court.20

Aggrieved, Misaj on, et al. moved for reconsideration, 21 which was, however, denied in an Order22 dated October 26, 2015; hence, this
petition.

The Issue Before the Court

The issue for the Court's resolution is whether or not the RTC Br. 35 correctly found Misajon, et al. to have defied the Commencement
Order and, accordingly, cited them for indirect contempt.

The Court's Ruling

The petition is without merit.

Section 4 (gg) of RA 10142 states:

Section 4. Definition of Terms. - As used in this Act, the term:

xxxx
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the
plan, more if the debtor continues as a going concern than if it is immediately liquidated.

xxxx

"[C]ase law has defined corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the
hope of its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and liquidity." 23

Verily, the inherent purpose of rehabilitation is to find ways and means to minimize the expenses of the distressed corporation during the
rehabilitation period by providing the best possible framework for the corporation to gradually regain or achieve a sustainable operating
form. 24 "[It] enable[s] the company to gain a new lease in life and thereby allow creditors to be paid [t]heir claims from its earnings. Thus,
rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is economically more feasible and its
creditors can recover, by way of the present value of payments projected in the plan, more, if the corporation continues as a going concern
than if it is immediately liquidate d.25

In order to achieve such objectives, Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order -
which includes a Stay or Suspension Order - all actions or proceedings, in court or otherwise, for the enforcement of "claims" against the
distressed company shall be suspended.26 Under the same law, claim "shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to; (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor arising from acts done in the discharge of their
functions falling within the scope of their authority: Provided, That, this inclusion does not prohibit the creditors or third parties from filing
cases against the directors and officers acting in their personal capacities."27

To clarify, however, creditors of the distressed corporation are not without remedy as they may still submit their claims to the rehabilitation
court for proper consideration so that they may participate in the proceedings, keeping in mind the general policy of the law "to ensure or
maintain certainty and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated." 28 In other words, the
creditors must ventilate their claims before the rehabilitation court, and any "[a]ttempts to seek legal or other resource against the
distressed corporation shall be sufficient to support a finding of indirect contempt of court." 29

In the case at bar, it is undisputed that LCI filed a petition for corporate rehabilitation. Finding the same to be sufficient in form and
substance, the Rehabilitation Court issued a Commencement Order30 dated January 13, 2012 which, inter alia: (a) declared LCI to be
under corporate rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI;
(c) prohibited LCI from making any payment of its outstanding liabilities as of even date, except as may be provided under RA 10142;
and (d) directed the BIR to file and serve on LCI its comment or opposition to the petition, or its claims against LCI. It is likewise undisputed
that the BIR - personally and by publication - was notified of the rehabilitation proceedings involving LCI and the issuance of the
Commencement Order related thereto. Despite the foregoing, the BIR, through Misajon, et al., still opted to send LCI: (a) a notice of
informal conference31 dated May 27, 2013, informing the latter of its deficiency internal tax liabilities for the Fiscal Year ending June 30,
2010; and (b) a Formal Letter of Demand32 dated May 9, 2014, requiring LCI to pay deficiency taxes in the amount of P567,5 l 9,348.39,
notwithstanding the written reminder coming from LCI's court-appointed receiver of the pendency of rehabilitation proceedings concerning
LCI and the issuance of a commencement order. Notably, the acts of sending a notice of informal conference and a Formal Letter of
Demand are part and parcel of the entire process for the assessment and collection of deficiency taxes from a delinquent taxpayer,33 -
an action or proceeding for the enforcement of a claim which should have been suspended pursuant to the Commencement Order.
Unmistakably, Misajon, et al. 's foregoing acts are in clear defiance of the Commencement Order.

Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes;
and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be
given any credence. As aptly put by the RTC Br. 35, they could have easily tolled the running of such prescriptive period, and at the same
time, perform their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose
of RA 10142 by simply ventilating their claim before the Rehabilitation Court. 34 After all, they were adequately notified of the LCI's
corporate rehabilitation and the issuance of the corresponding Commencement Order. In sum, it was improper for Misajon, et al. to collect,
or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings concerning the latter, and in the process,
willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them for
indirect contempt.35

WHEREFORE, the petition is DENIED. The Decision dated June 1, 2015 and the Order dated October 26, 2015 of the Regional Trial
Court of Calamba City, Province of Laguna, Branch 35 in Civil Case No. 4813-2014- C are hereby AFFIRMED.

SO ORDERED